Aave's USDG rollover plan faces yield hurdles

Analysis of Aave's USDG Rollover Plan

Aave's proposed USDG rollover plan aims to allow borrowers to carry their stablecoin debt into a new fixed-yield USDG position. However, the replacement collateral's yield is lower than the quoted borrowing rates, raising questions about the financial viability of the plan.

Risk Provider LlamaRisk's Assessment

Risk provider LlamaRisk assessed the February token's on-chain yield as falling short of USDT0, USDC, and USDG borrowing costs. The assessment showed that the replacement collateral's yield is lower than the quoted borrowing rates.

Flash-Loan Transaction

TokenLogic's proposal would enable a flash-loan transaction that temporarily repays debt, replaces the old PT collateral, borrows again, and repays the flash loan. OKX would develop the integration separately.

Aave Listing and OKX Integration

The Aave listing and separate OKX integration would both need to be implemented to make the rollover plan a reality.

Comparison of Borrowing APYs

A standalone PT-and-debt illustration shows how leverage changes the outcome. The illustration holds the displayed borrowing APYs constant through maturity, excludes rewards, transaction costs, and retained YT, and assumes no rebalancing.

Conclusion

The Aave USDG rollover plan faces significant challenges due to the replacement collateral's lower yield compared to quoted borrowing rates. The plan requires leverage and separately administered rewards to determine financial feasibility.