title: 2025-02-18 - USDS & GHO Borrow Rate Update
author: @TokenLogic
created: 2025-02-18
Summary
The Sky Savings Rate (SSR) is set to decrease from 8.75% to 6.50% on February 20th. This proposal recommends updating the USDS Borrow Rate accordingly and adjusting the GHO Borrow Rate on the Prime instance to ensure alignment with market conditions.
Motivation
In response to the recent proposal to lower the SSR to 6.50%, this publication recommends reducing the Base on Core and Slope1 on Prime by 2.25% each to maintain consistency with the updated rate structure.
The chart below illustrates the USDC and USDT deposit rates on Aave compared to the SSR over the past 90 days. Despite the SSR update 10 days ago, it continues to outperform USDC and USDT yields on Aave. This is largely due to the ongoing decline in USDC and USDT borrowing rates since mid-December. As a result, depositing SUSDS remains a significantly more attractive option relative to depositing USDC and USDT to generate yield.
The GHO Borrow Rate on Core has been reduced from 9.00% to 6.75%, resulting in a 6.98% cost of capital for non-stkAAVE holders. Once the SSR is lowered to 6.50%, the free carry trade between USDS collateral and GHO debt will no longer be profitable unless the GHO Borrow Rate is further reduced.
With the GHO Steward role active on Core, the GHO Borrow Rate can be adjusted quickly and has already been reduced on short notice. We expect the GHO Borrow Rate on Core to be lowered by 0.50% prior to this proposal being implemented. Therefore, this publication focuses on modifying the Prime instance of Aave, where the GHO Steward role has not yet been implemented.
With the USDS Borrow Rate (Slope1 parameter) being reduced by 2.25% on Prime, this publication proposes bringing forward plans to reshape the GHO Borrow Rate to reflect a lower Base and higher Slope1 parameter expected to promote greater utilisation of the liquidity.
This follows on from two already implemented adjustments by risk stewards, lowering the Base Parameter to 5.50%.
Specification
Prime Instance
USDS
| Detail | Current | Proposed | Change |
|---|---|---|---|
| Base | 0.75% | 0.75% | 0.00% |
| Slope1 | 8.75% | 6.50% | -2.25% |
| Slope2 | 35.00% | 35.00% | 0.00% |
Borrow Rate at Uoptimal 7.25%, exceeding SSR by 0.75%.
GHO
| Detail | Current | Proposed | Change |
|---|---|---|---|
| Base | 5.50% | 0.75% | -4.75% |
| Slope1 | 2.50% | 5.50% | +3.00% |
| Slope2 | 50.00% | 35.00% | -15.00% |
Borrow Rate at Uoptimal 6.25%, 0.25% less than the SSR.
Core Instance
USDS
| Detail | Current | Proposed | Change |
|---|---|---|---|
| Base | 8.75% | 6.50% | -2.25% |
| Slope1 | 0.75% | 0.75% | 0.00% |
| Slope2 | 35.00% | 35.00% | 0.00% |
Borrow Rate at Uoptimal 7.25%, exceeding SSR by 0.75%.
Disclosure
TokenLogic does not receive any payment for this proposal.
Next Steps
- Implement the proposed parameter changes via a Direct-to-AIP process.
Copyright
Copyright and related rights waived via CC0.