CGP173: Supply Liquidity to Aave via Mento Reserve (#582)

Author: bayological

CGPs/cgp-0173.md

@@ -0,0 +1,83 @@
+---
+cgp: 173
+title: Supply Liquidity to Aave via Mento Reserve
+date-created: 2025-03-13
+author: "Mento Foundation"
+status: "DRAFT"
+discussions-to: https://forum.celo.org/t/supply-liquidity-to-aave-via-mento-reserve/10540
+governance-proposal-id:
+date-executed:
+---
+
+## Mento Reserve supplying assets to Aave
+
+This proposal represents a significant milestone as it marks the first opportunity for Celo community members to actively participate in Mento governance. Following a previous proposal that distributed 25 million $MENTO tokens to the Celo community (now locked as veMENTO), community members have gained governance rights. Upon the execution of this proposal, Celo approvers will implement the community's decision through Mento governance.
+
+The details of this distribution of 25 million $MENTO tokens to the Celo community can be found in [this forum post](https://forum.celo.org/t/empowering-the-celo-community-with-mento-governance-rights/10122), along with the process of how voting will work.
+
+# Proposal Key Aspects
+
+- **Receiver Entity:** Celo Governance
+- **Status:** FINAL
+- **Title: Mento Reserve supplying assets to Aave**
+- **Author(s): Mento Foundation**
+- **Type of Request: Mento Proposal**
+- **Funding Request: N/A**
+
+# Summary
+
+Aave V3 will be launching on Celo in Q1’25. As Mento is currently the largest protocol on Celo, Mento is incentivized to help foster a robust and thriving DeFi market in the ecosystem. Mento Labs is proposing that the Mento Reserve will be granted the ability to supply up to $2.5M (cUSD, cEUR… equivalents) to any Aave market at any time post-launch on the Celo network ([Aave Governance Forum Post](https://governance.aave.com/t/arfc-aave-v3-deployment-on-celo/14605)). This includes but is not limited to cUSD, USDC, USDT, cEUR, (w)ETH, CELO, and any other markets that may launch in the future.
+
+# Motivation
+
+The motivation for Mento and its stakeholders is multi-faceted:
+
+1. **Yield on reserve assets:** supplied assets will generate a floating rate yield (based on utilization rate), helping the reserve maintain a healthy growth rate.
+2. **Create added utility for users’ assets:** Mento users will have the ability to borrow Mento stablecoins against their assets that they supply to Aave, a core DeFi primitive
+3. **Addition of new Mento markets:** As Mento launches more stablecoins as part of its core strategy, Mento will be able to create markets for them on Aave if the existing markets are successful
+
+# Specification
+
+$2.5M cUSD equivalent can be allocated per Aave market (asset) at the discretion of the Mento Foundation - which manages the Mento Reserve.
+
+It can be rebalanced at any given time at the sole discretion of the Mento Reserve management based on any criteria as mandated by the Mento Reserve and its governance body.
+
+**Risks**
+
+Supplying liquidity does not come without risks. Some that should be noted (but not limited to) are:
+
+1. **Smart-contract risk:** Every DeFi protocol and smart contract is exposed to malicious attacks on the smart contract (bugs or other vulnerabilities), which may lead to the loss of funds. It is worth noting that Aave V3 has never been successfully hacked by a malicious actor
+2. **Price-oracle manipulation:** Oracles outside of Aave (and Mento) are exposed to manipulation, which could lead to malicious actors technically or economically attacking funds
+3. **Opportunity cost:** There is an opportunity cost associated with supplying funds to Aave as there may be more attractive risk-adjusted returns on other venues.
+4. **Counterparty risk:** As Aave has no central governance, there is a risk of governance attacks on the protocol and other forms of counterparty risk.
+5. **Utilization risk**: If the Mento assets are in high demand (i.e., highly borrowed), withdrawals can become slow. This is why the Mento reserve is capping the supply of liquidity at $2.5M and continuing to overcollateralize the outstanding stablecoins.
+
+# Metrics and KPIs
+
+ROIC - Return on Invested Capital
+
+- Yield generated for the reserve
+
+# Current Status
+
+New proposal
+
+# Timeline and Milestones
+
+Mento Reserve will allocate funds at its discretion upon the launch of Aave and approval
+
+# Detailed Budget
+
+N/A
+
+# Payment Terms
+
+N/A
+
+# Team
+
+Mento Foundation will manage the supply of assets
+
+# Additional Support/Resources
+
+N/A

CGPs/cgp-0173/mainnet.json

@@ -0,0 +1 @@
+{}