Title: [ARFC] Increase GHO Borrow Rate to 5.22% on Aave V3
Author: Marc Zeller - ACI (Aave Chan Initiative)
Date: 2023-11-21
Summary
This ARFC proposes an increase in the GHO borrow rate from 4.72% APR to 5.22% APR to support the GHO peg restoration and align borrowing costs with market rates.
Motivation
Following AIP-349, which allowed for 50 bps increments in the GHO borrow rate, the peg remains off-target at ~0.965 avg price. This increase is part of the direct-to-AIP process to incentivize repayment and help restore the peg.
Specification
Current Borrow Rate: 4.72% APR - ~4.83% APY
Proposed Borrow Rate: 5.22% - ~5.35% APY
New Discounted Borrow Rate: ~3.7% - 3.75% APY
The proposal also authorizes ACI to continue with up to 100 bps incremental increases every 7 days if required up to 9.5% if the monthly avg price of GHO stays outside a 0,995<>1,005 price range.
Context
Comparative analysis with other stablecoins on Aave V3 shows that GHO’s current borrow rate is lower, which may contribute to its underpeg. The following table illustrates average borrow rates:
Stablecoin
Average Borrow Rate
USDC
6.39%
USDT
7.29%
DAI
6%
GHO
4.83% (APY)
Given this discrepancy, it is unlikely that the current rate is sufficient to restore GHO’s peg.
Next Steps
Implement the proposed borrow rate increase via a Direct-to-AIP process.
Monitor GHO’s peg and use authorized discretion for further rate adjustments.
Before we move on with more rate increases; I would like to see a coherent and integral plan for GHO. Increasing the rate only hurts early adopters and it didn’t help restore the peg.
Due to an implementation issue, this proposal has been escalated to AIP twice, with AIP-381 and AIP-384.
We fully acknowledge this issue and invite the delegates & community to reject AIP-384. We informed BgdLabs of this issue and they will disable Aave robot execution automation of AIP-384 as a second layer of safety.
While there’s no particular risk for protocol & users, that’s below the expectation we set for the ACI in terms of rigor.
We will improve our internal checks and processes and ensure this doesn’t happen again.
We would like to apologize to the community, Aave users and Aave DAO service providers.
The proposal also authorizes ACI to continue with up to 100 bps incremental increases every 7 days if required up to 9.5% if the monthly avg price of GHO stays outside a 0,995<>1,005 price range.
What exactly does it mean to authorize ACI? Will the ACI publish an AIP every 7 days and aave holders will have to approve, or will it automatically increase the rate without vote?
Anyways, if approved, I think makes perfect sense and will end long area of non-action. Thank you.
What this means is this proposal authorizes the ACI to post every 7 days. If the peg is not restored a new vote to increase by up to 100bps (1%) the borrowing rate as long as conditions are met.
The governance is then free to accept or reject the increase by voting.