[ARFC] Risk Stewards - Reduce GHO Borrow Rate Prime Instance

[TokenLogic]

---

title: [ARFC] Risk Stewards - Reduce GHO Borrow Rate Prime Instance
author: @TokenLogic
created: 2025-01-03

---

Summary

This publication proposes reducing the Base Parameter for the GHO Reserve on Prime instance by 2.00%.

Motivation

At launch, the GHO Borrow Rate was configured to suit the more buoyant market conditions of the time. Since then, market conditions have cooled and to date, the GHO reserve on Prime has experienced limited borrowing activity. Utilisation is 2.30% with less than 120k GHO borrowed.

The Borrow Rate for USDS on Prime is trending slightly above 10% which is slightly lower than USDT on Core instance after recent deposits has reduced utilisation.

Staked USDe is currently at capacity on Prime and is shown to be generating 12.50% on the Ethena dashboard. When the sUSDe supply cap is lifted, we expect demand for GHO debt to emerge, and if not initially, then when perpetual funding rates improve.

Ref: Aave Analytics | TokenLogic

Ref. Yields | Ethena

Additionally, the GHO Stewards lowered the Borrow Rate on the Core instance to 12.50% which is 1% less than the GHO Borrow Rate on Prime at the Uoptimal. Amending the GHO Borrow Rate at the Uoptimal on Prime to be less than the GHO Borrow Rate on Core encourages users to borrow GHO from Prime.

When demand for GHO on Prime emerges, providing the peg permits, the Borrow Cap shall be increased improving the overall efficiency of the GHO reserve, resulting in a higher deposit rate.

Specification

The GHO Base Parameter on Prime instance of Aave v3 is to be revised as follows:

Description	Current	Proposed	Change
Borrow Rate	10.50%	8.50%	-2.00%

This proposal is to be implemented by the Risk Stewards.

Disclosure

TokenLogic does not receive any payment for this proposal.

Next Steps

The Risk Stewards will implement this proposal.

Copyright

Copyright and related rights waived via CC0.

[LlamaRisk]

LlamaRisk supports this change.

The market’s exposure to GHO under the proposed change and potential sUSDe supply cap raise remains limited due to GHO’s current borrow cap (2.5M). GHO is not expected to face high secondary market sell pressure when sUSDe->GHO yield leverage positions are created.

We recommend monitoring GHO liquidity changes before executing any GHO borrow cap increases.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

[ChaosLabs]

Summary

Chaos Labs supports this recommendation to lower GHO’s Base Rate from 10.50% to 8.50%.

Motivation

Since listing, GHO on Prime has been consistently underutilized as its Borrow Rate has consistently remained higher than that of other stablecoin assets in the same pool. This was caused by its Base Rate being set higher than optimal. Reducing the Base Rate from 10.50% to 8.50% would make the asset’s interest rate curve more competitive with USDC and USDS in the Prime instance; their borrow rate has occasionally been below GHO’s recommended Base Rate for the past two weeks.

Reducing the GHO Base Rate to 8.5% will also better align its borrow rate range with the latest proposed GHO Interest Rate within the Ethereum Facilitator, which, following the latest recommended change from TokenLogic, is expected to range between 11.50% and 8.05%, depending on the utilization of the discount function.

Additionally, GHO’s liquidity against sUSDe, which is likely to be its most popular collateral asset once its borrow rate is more competitive, has remained stable over the past two months.

Given these considerations, we agree with the recommendation.

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0