With AIP-308, the GHO borrow cap will be cut to 35m, limiting potential depeg capacity. The effect of Increasing the GHO borrow rate to 2.5% is unclear for the growth trajectory for GHO, but does not add risk.
- Increasing borrow rate to 2.5% may encourage GHO minters to repurchase GHO on market to repay GHO debt
- Balancer incentives of 10% are sufficiently higher than the increased borrow rate, suggesting that liquidity flight from minters that chose to LP is unlikely.
On GSM capabilities
A well designed and sustainable GSM is critical to maintaining GHO peg, since it will facilitate continued decentralized GHO-USDC/USDT 1:1 swaps when GHO < $1.
With the current envisioned GSM, users can mint GHO 1:1 without liquidation risk or DEX swap - a capability that does not exist on Aave v3 - to participate in incentivized LP strategies. Although it is unclear as to the composition and size of exogenous assets in the GSM upon launch, this new capability should spur organic GHO mint via GSM. Utimately, GSM sustainability is dependent on significant use cases for GHO.