Decentralized finance (DeFi) lending protocol Aave has introduced a new governance proposal that could expand collateral options for users on the Optimism network. The proposal suggests enabling sUSD (Synthetix USD) as accepted collateral within Aave's v3 markets on this Layer 2 scaling solution.
Proposal Overview
Community member MattLosquadro submitted the proposal to Aave's governance forum on April 22, 2022, highlighting several key benefits:
- sUSD is the most widely used stablecoin on Optimism
It serves as the primary trading stablecoin across multiple DeFi platforms including:
- Synthetix
- Kwenta
- Lyra
- Thales
- Polynomial Protocol
The proposal emphasizes that this integration is "long overdue" given sUSD's established utility within the Optimism ecosystem.
Technical Justification
Several factors make sUSD an attractive collateral option:
- Growing Market Cap: sUSD has shown consistent growth in market capitalization over the past year
- Stable Demand: There's been steady demand for decentralized stablecoins
- Collateralization: The token is slightly overcollateralized by SNX governance tokens
- Liquidity: Improved DEX liquidity has helped maintain sUSD's stability since 2021
The proposal notes that SNX stakers actively manage their debt positions based on stake size. When demand spikes across markets like Aave, this can lead to minor peg deviations that typically self-correct over time.
Advantages of sUSD Integration
Key benefits highlighted in the proposal include:
| Advantage | Description |
|---|---|
| Functional Parity | sUSD shares core functionality with SNX |
| Upgradeability | Both SNX and sUSD contracts are fully upgradeable |
| Governance Process | All changes follow formal governance procedures |
| Liquidity | Existing deep liquidity in L1 pools, incentivized L2 pools |
Additional technical considerations:
- All synthetics can be redeemed at sUSD's dollar value via Chainlink oracles
- Curve's synthetic pools offer complementary liquidity options
- No significant counterparty risk due to pre-announced upgrades
Community Response and Next Steps
The proposal has received strong initial support from Aave governance participants. Key decision factors include:
✅ Clear utility case for Optimism users
✅ Proven stability mechanisms
✅ Existing ecosystem integration
If approved, the change would:
- Expand borrowing options for Optimism users
- Increase capital efficiency within Aave v3
- Further integrate Aave with Synthetix ecosystem
The proposal is now undergoing standard governance procedures including:
- Temperature check
- Consensus check
- Final vote
FAQ: sUSD Collateral Proposal
Why enable sUSD specifically on Optimism?
Optimism has emerged as a primary scaling solution for Synthetix protocols, making sUSD the natural stablecoin choice for this network.
What prevents sUSD from depegging?
The SNX staking mechanism and active debt management by stakers create strong incentives to maintain the peg, with minor deviations typically self-correcting.
How does this benefit Aave users?
It provides Optimism users with more collateral options while maintaining security standards, potentially increasing protocol TVL and utility.
What risks does this introduce?
The proposal identifies minimal new risks given sUSD's existing track record and SNX's overcollateralization model.
When would implementation occur?
Following standard governance timelines, implementation would likely occur 2-3 weeks after successful voting.
How does this impact Aave's risk parameters?
The proposal suggests maintaining conservative loan-to-value ratios initially, with potential adjustments based on performance data.
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The Aave community continues to demonstrate proactive governance with proposals like this that carefully balance innovation with risk management. As Layer 2 adoption grows, such strategic integrations will likely play an important role in maintaining Aave's position as a leading DeFi money market. The thorough analysis presented in this proposal suggests thoughtful consideration of both technical and economic factors, setting a strong precedent for future collateral expansion discussions.