Simple Summary

This proposal aims to integrate Aerodrome Finance’s $AERO token into the Seamless protocol on the Base mainnet. $AERO serves as both a utility token and a liquidity provider incentive, disbursed to active participants within Aerodrome’s ecosystem.

Abstract

This proposal seeks to integrate Aerodrome Finance’s $AERO token into the Seamless protocol on the Base mainnet by creating lending and borrowing markets. It aims to utilize the organic synergies between the Dexes sector represented by Aerodrome Finance and the Lending sector represented by Seamless Protocol. By introducing $AERO into Seamless, the proposal will enable $SEAM holders to diversify their portfolio with a dynamic new asset, potentially enhancing the protocol’s total value locked (TVL) and increasing user engagement. This protocol change will involve updating Seamless smart contracts to accommodate $AERO transactions, thereby broadening $AERO’s utility and enhancing its accessibility to a larger user base, thus benefiting both Seamless Protocol and its stakeholders.

Motivation

The integration of AERO into Seamless is proposed to address current limitations in token diversification and utility. AERO’s robust market activity, with a USDC/AERO pair holding an $88M+ TVL and over $21M in trading volume, along with a WETH/AERO pair maintaining a $14M+ TVL and $4.7M+ in trading volume, reflects its high market demand and liquidity. Furthermore, with over 70,000 holders and more than 8 million transfers, AERO is proven to have a highly active and engaged user base. This proposal seeks to capitalize on these strengths, enhancing the utility of AERO within the broader Base ecosystem and driving increased total value locked (TVL) and user activity on Seamless.

Specification

Overview

The proposed protocol change involves integrating $AERO into Seamless’s existing contract architecture to enable deposits, withdrawals, and management of $AERO assets. Initial phases will focus on supply and demand mechanics without enabling borrowing or use as collateral until deeper liquidity and market stability are confirmed.

Rationale

Integrating AERO into Seamless could harness its active user base and substantial liquidity, potentially transforming Seamless into a pivotal platform within the Base ecosystem. Over 57% of AERO’s supply is locked in Aerodrome’s Voting Escrow contract, which is indicative of the token’s utility and the community’s commitment to its long-term value. By creating lending and borrowing markets for AERO, Seamless could enhance this existing ‘flywheel effect,’ encouraging users to further leverage their AERO holdings to maximize rewards from Aerodrome’s fee structures. This could not only benefit individual AERO holders but also significantly boost Seamless’s TVL, as users may be incentivized to compound their positions and engage more deeply with both platforms.

Technical Specification

To integrate AERO into Seamless, a detailed analysis will be required to set appropriate risk parameters such as Supply Cap, Borrow Cap, Loan-to-Value (LTV) ratio, Liquidation Threshold (LT), and Liquidation Bonus (LB). Optimal utilization rates will also need to be determined to maximize the efficiency and stability of AERO markets within the protocol.

Risk Analysis

AERO’s current market cap stands at $550,639,161, with its availability varying significantly across different exchanges. On Aerodrome, the +/- 2% depth for AERO/USDC is approximately $1,760,214/$1,754,925, showcasing strong market liquidity. Conversely, on Coinbase Exchange, the AERO/USD +/- 2% depth is $261,281/$171,936, indicating lesser liquidity but still sufficient for stable operations. The fully diluted value (FDV) of AERO is approximately $1,288,085,872, with a 24-hour trading volume of $30,175,364. These metrics will help define the risk framework for AERO’s inclusion in the Seamless ecosystem, ensuring that its integration is both secure and beneficial to users.

Chaos Labs Risk Analysis

Liquidity and Market Cap

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of AERO over the past 180 days was ~$183.95M, and the average daily trading volume was ~$17.39M (CeFi & DeFi).

Liquidation Threshold

Analyzing AERO price volatility over the past 180 days, we observed a daily annualized volatility of 287.59% and a 30-day annualized volatility of 108.47%. Considering this volatility, we recommend launching with an LT of 40%.

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Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $2M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops: Medium-High and High. We estimate the high probability of an extreme price drop for AERO.

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.

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Given AERO’s liquidity, we recommend a 10% Liquidation Bonus, a supply cap of 11,000,000 AERO, and a borrow cap of 5,500,000 AERO.

Recommendations

We recommend aligning the interest rate parameters to be competitive with long-tail assets across other lending protocols.

Following the above analysis, we recommend listing AERO with the following parameter settings:

Resources

• Tokenomics: https://aerodrome.finance/docs#tokenomics
• AERO Chainlink Feed: https://data.chain.link/feeds/base/base/aero-usd
• Aerodrome Dune Board: https://dune.com/0xkhmer/aerodrome
• Twitter: https://twitter.com/aerodromefi
• Github: Aerodrome Finance · GitHub
• Basescan: $1.25 | Aerodrome (AERO) Token Tracker | Base