[ARFC] Further increase GHO Borrow Rate

While I support this increase, I’d urge the community to consider @ApuMallku 's input and make some of these changes fall within a threshold pre-aaproved by governance under certain parameters to make these changes more efficient

How could an automated system look like? I imagine we could only give something similiar like the risk steward access to change the parameter. This way it could be a bit faster, but i don’t know how it could be automatic.
@ApuMallku maybe you can elaborate.

Echoing our comment on the previous GHO borrow rate increase, while it is hard to establish that the borrowing rate increase will have a strong impact on the GHO peg, increasing the GHO borrow cap does not introduce additional risk and we are supportive of the proposal.

Peg is determined by what someone is willing to pay you for the token. As it stands GHO has no function (that I’m aware of) outside of borrowing and/or parking on aave.
Is it not possible to create a redemption function to convert X number of coins into something else on aave with a set value of 1$? An entity out there willing to pay you 1$ for a GHO be it in btc/usdc/eth would there by make it worth a dollar and crate arbitrage opportunites keeping it at or close to peg.

We think it is unproductive to have a governance proposal constantly to increase the borrowing rate which won’t have any short-term effect on the GHO peg as @ChaosLabs stated. What kind of message are we sending to the market? changing parameters so often is not good at all. The focus should be on enabling GHO leverage and more utility and integrations across defi protocols. The decision to increase the GHO borrow rate should not be for improving the peg.

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I think the proposed borrow rate change should have a positive impact on GHO peg. However, I don’t think 3% will be high enough to get GHO back to 1:1 parity with USD.

IMO the best course of action would be to either:

  • Raise GHO borrow rate directly to 5% (parity with DSR and Maker/Spark borrow rates, highly likely to push GHO up to price parity with USD, while offering a significant ~1.5% rate discount to stkAAVE stakers)
  • Adopt a formal plan to raise GHO borrow rates by 0.5% (or more) each month until GHO price is within 0.995<>1.005 USD monthly average price range

GHO is too young for such a sharp increase, peg will be restored but with 5M circulating supply :joy:

This makes sense to me, and if other ppl in the community are supportive to include this in the current ARFC.


Makes sense for us as well, although we would probably set a ceiling of 4.5-5% to maintain some competitiveness.

Proposal updated to allow a direct-to-AIP process for the ACI and increment GHO borrow rate by 50 bps every 30 days if GHO is outside of target monthly average price range.


While this proposed change comes with its own growing pains, increasing the borrow rate is in the best interest of the GHO Stablecoin.

Ultimately, I agree with @ApuMallku’s position: it’s a total non-sense that the Aave governance can vote on the GHO interest rates, as it hinders borrowers’ confidence in the product.

Interest rates are operational parameters; it’s utterly unfit to be managed by governance. I anticipated issues around this topic since the first announcement of GHO about a year before its launch in post published on my blog in August 2022:

The interest rate model for GHO is currently its most underwhelming component, as the initial post envisioned an interest rate directly determined by the Aave DAO, just like how it works on Maker. However, that would be inefficient and add unnecessary bloat to the governance.

When it comes to deciding which components of a protocol should fall under the governance umbrella, I think Hayden puts it very eloquently, and I fully align with his view:


The interest GHO falls in the first category: we’ve been able to set interest rates programmatically for more than three years on Aave’s money markets; I don’t see why we couldn’t on GHO.

I agree with @monet-supply suggestion, as this would, in one vote, provide a credible solution to the current interest rate vs. GHO interest rate conundrum, and would support such a proposal.

However, I urge Aave’s governance and service providers to consider, explore, and eventually formalize an algorithmic solution to this question. Building and sustaining trust with borrowers is essential for a stablecoin based on debt - the best way to achieve it is to offer the most predictable conditions to borrowers.

Borrowers should not have to check the governance every couple of weeks to anticipate the rate they will pay in the (short-term) future. They should be able to anticipate it based on a clear set of rules. It doesn’t prevent a solution/algorithm adapting to various market conditions, such as GHO’s price.


Gauntlet has contributed previously on raising GHO borrow rates. Further raising borrow rates does not bring excess risk and may help incentivize current GHO minters to repurchase GHO on market to repay GHO debt, helping bring GHO closer to $1.

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We think this is a good start to restore the peg.

However, do think that governance should consider if we want to kill GHO’s main current use case in the market.

Most GHO is sitting in liquidity pools, but this is because it has found product-market-fit as one on the cheapest ways to get exposure to leveraged sDAI yield. It is also the only straightforward way to do this trade with stablecoin collateral (not to mention sDAI collateral).

Savings DAI rate has pushed up rates on all other stablecoins, so it has been a profitable trade to loop borrowing GHO and swaping it for DAI.

This is naturally reflected in prices as there is minimal incentives for liquidity providers to bring other stablecoins to the system to support the GHO price. As a result, it has been trading around the spread of interest rate to sDAI yield.

We think this is a good use case for GHO, but no one seems to talk about this much when it comes to the forum here. If people want to leverage interest rate spreads using AAVE’s stable (it is one of the best ways to do this trade remember) then it seems like we should let them?

If we want to close the spread to make this trade less attractive or more difficult to execute that is fine. Raising the interest rate will do this and we should see GHO head back towards peg. Keep in mind it won’t reach peg until the rate spread is closed (either GHO rates go up or DSR rates come down).

The other option is that Aave can increase incentives for LPs to bring other stablecoins into the system. This will support price, but we doubt governance is willing to move fast enough or with enough money to satisfy the demand for leveraged rate trades.

We are in favor of increasing, but also looking into automated mechanisms or guidance in the longer term as TokenBrice suggested. Something like a slight discount to other stablecoin borrows could be an interesting mechanism.


We support @monet-supply’s suggestion, as we mentioned something similar in our voting action rationale on the last GHO Borrow Rate increase. It’s important to provide predictability on how GHO’s parameters are handled to foster trust among all market participants.

In our opinion, an algorithmic implementation like the one suggested seems to be the right approach to achieve the above, also allowing for the ability to swiftly handle a hypothetical overpeg scenario.


proposal escalated to the Snapshot Stage

Voting starts tomorrow.


I want to share my experience as a new member of the AAVE ecosystem.

I joined approximately 2 months ago and was really fascinated by the premise of GHO being promoted as a native stablecoin with a fixed borrowing rate.

Like many other users, I borrowed a substantial amount of GHO (7 figures) and then converted it into assets that I had purchased as part of my strategy.


It is very important to emphasize that when I borrowed, the rate was ~1%. Because of the rate difference between it, USDT and USDC, GHO was in low demand and I ended up paying a “premium” on the conversion which resulted in an immediate loss of ~3% on the total amount.

The notion of doing it was in the context of locking on to the borrowing cost up-front.

1 month later I realized that the publicly promoted “Fixed rate” had changed to 2.5%.

Today I see that the same “Fixed rate” has changed to 3%. Tomorrow maybe it will go up to 10%? From what it feels, GHO is just an extension of USDC and USDT with a fake promise of stability.

The takeaway of this whole experience has left a very bitter taste. What I believed was that the borrowing rate would be stable, at the expense of the market rate of GHO which can be dynamic and not necessarily with a strong peg, as the market demand shifts the rate based on the relationship of the GHO rate vs the USDC and USDT. Trading off permanent borrowing costs, for impermanent loss risk management.

This model turned it into a long-term instrument for onboarding new investors and facilitating stickiness which from my perspective can build vasts amount of TVL onto the protocol.

If it hadn’t been for the GHO, I would have probably deposited my collateral on Compound due to the better overall rates that were at the time.

From a user experience, the whole orchestration of the rollout of GHO is a disaster, because it is mostly based on fake promises of fixed borrowing rate. GHO borrowing rate is highly dynamic as we can see and the DAO just acts as an unpredictable price oracle. Each rate change being the result of someone’s idea coming out of the blue.

Believing in the fixed borrowing rate, I accepted paying 3% “up-front” in costs through the 0.97 rate at the time of converting, only later to find GHO having identical borrowing APR as USDC. Essentially doubling the cost. Right now USDC is offered at 3% and I ended up with a 6% cost for my GHO.

If I had borrowed in USDC, I would ve saved myself tens of thousands of dollars in losses.

Being an early adopter of GHO and having believed in the “fixed rate” promise, It turns out that I get penalized for that.

This is a huge blow to the trust factor in the protocol for me.

Please update your UI to stop luring people into believing GHO has a fixed borrowing rate. This is highly deceptive and not worth the reputational risk. Once this thing hits a 10% borrowing rate, it will be a shitstorm. There are probably 3-4 key UI elements that outline that GHO is offered at a fixed rate.

As arguments for managing the tentative peg:

  • when the supply is depleted, the rate will get back as LPs will be incentivized to buy
  • LPs will be willing to buy GHO if they know the DAO can’t front-run them by changing the market rate
  • Create an incentive for LPs
  • Leave the peg a bit loose, as there’s no issue in having a ~5% deviation. It’s transparent, its predictable and it allows borrowers to do their own strategy. IT self-adjusts based on the market and is a fair system with no centralized intervention.
  • Most importantly it corresponds with the message that has been conveyed so far to the users who borrowed 25M+ of GHO

I had a 2-year plan related to GHO, which turned into a disaster. I will now have to buy much higher than I sold, because of the intervention of the DAO and the deceptive UI.

You can either have a fixed borrowing rate or a fixed peg. You can’t have both. And you already promised one of them.


Hi stickletti,
thanks for sharing your experience. I can understand your frustration.

But believe me for everyone being on your side, there are others being on the opposite side: They bought the stablecoin below peg, because the team promised that it will repeg and advertised it as a stable coin 1:1 to the dollar throughout the documentation. They are equally frustrated.

You can either have a fixed borrowing rate or a fixed peg. You can’t have both.

I agree. But I think the peg is long-term much more important, as the borrowers need stablecoin holders to be their buyers. And stablecoin holders need a stable peg to have a useful coin. Stablecoin holders do not want to pay the one day 2 GHO and the next 2,2 GHO for their cup of tea.

To resolve this frustration conflict between “peg-believers” and “constant interest-rate believers”, I think its a fair to not restore the peg immediately, but gradually via interest rate increases(as proposed 50 basis points each month), such that all parties the time to position themselves.

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I completely agree with you, the main feature of a stable coin it’s being stable. We should not forget that and work to recover the peg.

Unfortunately stickletti is right which is also why it’s important to bring it back to peg.

If users had been trading out of GHO at par because liquidity was well managed at launch, a clear plan to manage the peg was in place, etc. then all of this would have been avoided.

As it is the plan is mostly clear though likely many degens don’t spend time on governance forums so have no idea about the planned raises. The liquidity committee situation and plans is less clear to us but we assume it is slowly getting worked on.

Probably also worth warning users in a few ways that the interest rate is planned to raise again until GHO is back to peg. Luckily it won’t be to 10% as stated above but there will be more frustrated forum posts without better communication on the DAOs plans for liquidity and rates.


That’s why an algorithmic solution is much more needed now than ever, why do we need to rely on governance proposals to increase/decrease the rates? let’s keep building more decentralized toolings for AAVE and less human intervention, especially with an important product like GHO which didn’t have the impact we all wanted.