"Trustless" Starts with a Model: Interpreting the Community-Friendly GHO (Aave) Simulation Model

Written by: Elaine, Dirk, Jereyme

Compiled by: Sissi

Translator’s note:

This translation will introduce the proposal just funded by Aave & GHO Eco Advancement. The proposal aims to use the no-code, visual modeling and simulation tool HoloBit to build a high-fidelity GHO basic model for the top DeFi protocol Aave, enabling complex simulation technology to move from a few experts to the community and the public, allowing more ordinary people to participate in construction and innovation.

*The value of this proposal lies in promoting protocol design innovation through rapid trial and error and efficient iteration, while pre-checking economic security risks through OffChain simulation and improving design quality and reducing trial and error costs. In addition, as an interactive educational tool, the model aims to enhance users’ understanding and trust in the GHO system, as well as improve the community’s ability to participate in governance and response speed.

1. Proposal Details‍

1.1 Background Overview

As a key leader in the Defi field, AAVE has always been at the forefront of innovation and technological development. The launch of $GHO as the native stablecoin of Aave is a key strategy to further achieve mass adoption of the AAVE ecosystem and even drive the DeFi to reach the next billion users. However, as a stablecoin that appeared relatively late in the market, GHO still has significant room for growth, which will inevitably involve the rapid introduction, verification, and deployment of a series of innovative solutions. It is crucial for the current AAVE & GHO to design and optimize various solutions, conduct risk assessment, and make scientific decisions in a transparent and efficient manner while maximizing innovation and collaborating with the community.

1.2 Project Introduction

This proposal aims to use the advanced no-code, visual modeling and simulation tool HoloBit to build a high-fidelity GHO OffChain basic model that is readable, usable, and verifiable by the public. The “OffChain simulation” uses machine learning and statistical models to analyze off-chain data, efficiently evaluate economic mechanisms and potential risks through running a large number of Monte Carlo simulation scenarios, without the need for direct interaction with the blockchain; the “OnChain simulation” forks the blockchain at a specified block height, creates a test environment similar to the mainnet, and performs protocol simulation with high accuracy.

We will build Users, Facilitators (AAVE Pool, FlashMinter, GSM), GHO, Market, Goverance and other key "building blocks", and complete LEGO-style GHO model building by dragging, connecting and other minimalist operations; At the same time, we will conduct a strict validity test on the model to ensure that it can restore the GHO protocol ecology with high fidelity.

The future role of this model includes but is not limited to the following aspects:

• Provide Insights: By capturing and analyzing key mechanisms and parameters in the GHO ecosystem, the model can reveal the main factors that affect system behavior, helping users understand the operating principles of complex systems.
• Optimized Design: The model provides an experimental platform where users can continuously adjust and optimize protocol mechanisms and parameters based on simulation results, fully validating various design schemes, and improving innovation iteration efficiency.
• Anticipating Risks: By testing different scenarios and assumptions in the model, potential system vulnerabilities and risk points can be identified in advance, corresponding response strategies can be formulated, and uncertainty in actual operation can be reduced.
• Support for decision-making: The data and analysis results provided by the model can provide valuable references for decision-makers, helping them make wiser decisions in complex environments.

Importantly, the simulation model is highly transparent and shareable, and its flexible and user-friendly “Lego-style” way of building and scaling makes it easy for non-technical users to access and innovate, and is expected to be a powerful educational, governance, and outreach aid for GHO protocol. At the same time, the model complements and augments existing protocol design and Risk Management frameworks, providing new implementation ideas for the next generation of “community-based innovation and security solutions.” **

1.3 Project Value

Specifically, this new solution will bring value in at least the following areas:

• Fast trial and error, bold innovation, efficient iterative protocol design

**The GHO Foundation Model is a powerful tool for innovation verification and design optimization. It provides a unique experimental shorter where users can brainstorm freely and boldly. Whether you’re exploring better combinations of parameters or experimenting with entirely new mechanics, it’s all based on this highly friendly and flexible foundation model that allows each new idea to be quickly prototyped and iteratively optimized. For example, you can efficiently experiment with various GHO integration schemes, such as different “soft liquidation” mechanisms, emergency redemption mechanisms, etc., and effectively identify relatively feasible and potential innovative combinations through the simulation results of the OffChain model. Not only does this dramatically reduce the time from concept to implementation, but it also significantly drop the cost of trial and error. In this way, the GHO base model will dramatically improve the speed and quality of design iterations, and will help AAVE and GHO innovate in protocol functionality, scale in new chains and use cases, and stay ahead of the curve in technology and service innovation.

• Comprehensively screen economic security risk points, efficiently shrink the simulated experimental space

Instead of the regular protocol development process, we propose to add a OffChain simulation link before smart contracts development. The advantage of this is that security can be built into the design stage, through the OffChain model that has been tested for effectiveness, the “behavior short” of the protocol system under the new design scheme can be rehearsed in advance, the potential risk points can be quickly and comprehensively scanned, and the design can be continuously iteratively optimized in combination with the feedback of the OffChain model, so as to efficiently narrow the “problem domain” of economic security, saving a lot of time and resources for subsequent OnChain simulations. It is relatively cost-effective to identify design flaws early in the design process, and for AAVE and GHO ecosystems, OffChain simulation and OnChain simulation may be a more cost-effective security solution. **

• Interactive dynamic educational and promotional tool

The initial prototype of GHO is user-friendly. Even non-technical users can easily understand the mechanism of the model and perform innovative operations such as verification, experimentation, customization, and expansion.

**This model can be used as a dynamic educational tool that GHO can interact with. **If embedded in GHO’s Concept introduction page, users will not only understand GHO but also directly see the design, interaction and simulation results of the mechanism through an intuitive and dynamically running visual model, which realizes the “double transparency” of protocol mechanism and risk. Users can also freely interact with the model, debug parameters and even increase or decrease mechanisms, and more intuitively understand the impact of different decisions on the system. At the same time, the rapid iteration and update of the Offchain model also makes the education content time-sensitive, keeping it relatively synchronized with the protocol smart contracts code, and realizing the “real-time transparency” of the protocol mechanism and risks.

At the same time, the model can also be shared with one click. This means that if the initial prototype of GHO can be popularized in the community, it will promote wider user education and in-depth participation, enhance the public’s awareness, trust, and acceptance of AAVE and GHO systems. This is also a key step for AAVE & GHO to expand the market and achieve mass adoption.

• Enhancing the level of decentralization and responsiveness of governance, and strengthening community innovation

The initial prototype of GHO is highly user-friendly and scalable, allowing users from various backgrounds to participate in the governance of AAVE and GHO ecosystems. When the public’s understanding of GHO’s mechanisms and risks is sufficiently high, everyone can experiment based on the initial prototype of GHO. Not only can they deduce the potential consequences and risks under various extreme scenarios or assumptions, but they can also innovatively optimize the iterative mechanisms and parameters. At the same time, everyone can share their findings in the community and submit proposals for protocol improvements.

The initial prototype of GHO gives the public the ability to participate deeply in protocol governance, which can not only significantly improve the response speed of governance, but also help maintain a high level of participation and decision-making quality in the constantly evolving community, and even inspire the exciting creativity of the community. Taking Facilitator as an example, every user can help proposals gain more community recognition and support by showing the operational results, risks, and potential impact on the system of adding a certain Facilitator model to the community. Therefore, everyone has the ability to participate in shaping the future, which will greatly inspire the enthusiasm of community members to participate in governance and inject more possibilities into the future development of the protocol.

1.4 Project Innovation

• Not only can it reduce risks, but it can also stimulate more innovation
• Real-time transparent display of mechanisms and risks
• Designed for the community, everyone can use it easily
• Unprecedented governance, education, and promotion tools

1.5 Project Goals

Short-term Goals

• Efficiently complete the construction of the GHO basic model to ensure that it can faithfully restore the protocol ecosystem, laying a solid foundation for subsequent community members to carry out design optimization, risk screening, and other advanced work based on this model.
• Building on the successful experience of AAVE, trying to provide a possible new approach to education, governance, and promotion. With the GHO OffChain model as the core, develop a clear educational plan to ensure that the public can understand, use, verify, customize, and expand this model, further consolidating the foundation for the implementation of community-based governance and promotion methods.

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Long-term Goal

• Contribute to a more robust GHO ecosystem. **By providing the OffChain model, it assists the community in exploring possible optimization directions, and works with other service providers to gradually improve the stability of the system and the ability to cope with market fluctuations.
• Explore the application of the OffChain model in the AAVE ecosystem. If this trap method can be successfully piloted in the GHO ecosystem, we hope to be able to reuse it in the AAVE ecosystem and contribute to the process of advancing AAVE’s next mass adoption.

2. Feasibility Study

2.1 Feasibility of Protocol Simulation

The famous statistician George Box once said, “All models are wrong, but some models are useful”. Models are essentially a simplification and abstraction of the real world, so both OffChain models and OnChain models are inevitably based on a series of assumptions. However, these assumptions do not affect the validity of the models. Instead, they help us better understand and analyze complex systems through simplification and focus.

Risk management teams such as ChaosLabs, Llamarisk, and Gauntlet have made outstanding contributions to the ecosystem in the process of protocol simulation. They have made a lot of assumptions, such as Only DEX Liquidity, Price correlations, and At most one liquidation per account per block, which help them quickly focus on the core issues. Although these assumptions simplify the real conditions, they do not affect the practicality and utility of the model in solving specific problems.

From the results, these advanced teams are continuously providing mature parameter optimization and mechanism iteration, as well as economic security management suggestions for the sustainable development of the AAVE protocol ecosystem, which to some extent also verifies the feasibility of protocol simulation. These success cases indicate that whether it is an OffChain or OnChain model, although both are based on assumptions, they can be flexibly adjusted according to simulation objectives to ensure the effectiveness of the model, which provides valuable experience reference for the model construction work of this proposal.

2.2 Feasibility of the team using HoloBit to complete protocol simulation

About the Team

The team members have interdisciplinary expertise, including computer science, economics and systems engineering, blockchain, etc., with deep academic theoretical knowledge and rich project experience in complex system modeling, protocol simulation, and other related fields. Past projects have been recognized by the TokenEngineering Commons grant program, demonstrating the ability to complete this proposal. Member profiles are as follows:

Elaine: Investigator. He has high ABM modeling ability and rich experience in financial quantitative analysis, and has successfully reproduced the financial physics laws in the high-frequency trading order book through the model. He has rich modeling experience and practical experience in protocol simulation, and now focuses on the research of Token engineering and protocol modeling and simulation. Dirk: A Token Engineer with five TEA NFT focused on designing and optimizing encryption protocol. He delves into tokenomics and token engineering, and specializes in customizing and optimizing Token economic models for various projects to improve their stability and performance.

• Jeremy: Token Engineer with five TEA NFTs, focusing on designing and optimizing encryption protocols. Since 2022, she has been dedicated to token engineering, promoting education and collaboration in the field.

About HoloBit

HoloBit is user-friendly, transparent, and supports sharing, with the characteristic of making the initial prototype of GHO become a community education, governance, and promotion tool.

Having an Agent-Based modeling and simulation engine that is Turing Complete, which is an important foundation for achieving high-fidelity OffChain GHO models.

Research Results

Our research team has used HoloBit to quickly build the OffChain model of the Terra/Luna protocol, and through simulation experiments, successfully reproduced the intrinsic mechanism of the Terra/Luna collapse, proving the research and modeling capabilities of our team and the ability of HoloBit to restore and construct real protocols.

The Terra/Luna model link is as follows (requires opening on a computer):

Scenario 1, Bull market:‍‍‍‍‍‍‍‍‍‍

Scenario 2, Bearmarket:

Scenario 3, Bull market & Attack:‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍

HoloBit has launched a series of research group support plans for protocol ecology optimization. We are fortunate to have received sponsorship from its advanced account, and will use this advanced modeling and simulation platform to fully transparently build the details of our GHO initial prototype and the entire validation process.

3. Research Route

3.1 Technical Roadmap and Deliverables‍‍‍‍‍‍‍‍‍‍

Technical route overview of this study: see original text

3.2 Current Progress

In view of the important role of AAVE in the Defi ecosystem and the strategic significance of the launch of $GHO, we have pre-launched part of the first part of the technical roadmap “GHO Mechanism Research”.

• Based on the current preliminary research, our model will cover at least the following key zones:

See original text for details

• Based on the current preliminary research, our model interaction process (draft) is as follows:

It needs to be emphasized again that the above key zone and process interaction diagram are just a simple output of a quick preliminary investigation, which does not represent the final model prototype, and there may even be some errors. As the investigation deepens, we will provide more comprehensive and accurate zone descriptions and process interaction diagrams.

4. Conclusion‍

It is hoped that by introducing the OffChain GHO initial prototype in the AAVE ecosystem, it will not only cooperate with the existing risk management framework to jointly safeguard the economic security of the AAVE and GHO ecosystems, but more importantly, it is hoped that this model will serve as a transparent and flexible experimental platform to encourage broader community participation and innovation. In addition to ensuring high-fidelity model development and optimization, the research funding obtained from this proposal will also be invested in community education and promotion activities to maximize the impact of this project in the Aave ecosystem.

We believe that the implementation of this project will effectively enhance public awareness, trust, and acceptance of the AAVE and GHO systems, while greatly enhancing the community’s governance and innovation capabilities. We look forward to working with Aave to open a new chapter in Defi that covers the next billion users, allowing everyone to participate in this exciting new era safely, transparently, and efficiently.

Thank you for considering this proposal and for the support of HoloBit. We look forward to contributing value to AAVE and the entire community, and to advancing this journey of innovation and change together.