[ARFC] TokenLogic GHO Stewards - GHO Borrow Rate Update 01/12

[TokenLogic]

---

title: [ARFC] TokenLogic GHO Stewards - GHO Borrow Rate Update 01/12
author: @TokenLogic
created: 2024-01-12

---

Summary

This publication proposes reducing the GHO Borrow Rate by 1.50% on Core and is to be implemented by the GHO Stewards.

Motivation

The Borrow Rate has been trending lower in recent days, alongside improvements in DEX liquidity distribution, GSM balances, and peg stability.

GHO’s circulating supply has contracted, while stkGHO continues to grow, largely driven by the Spectra integration.

Despite GHO being minted through USDT and USDC GSM, its overall circulating supply has declined.

Ref: Aave Analytics | TokenLogic

Ref: Aave Analytics | TokenLogic

stkGHO continues to grow strongly within the less buoyant yield environment.

Ref: Aave Analytics | TokenLogic

The distribution within Balancer and Maverick liquidity pools has improved, whilst other pool remain similar.

Balancer v2 3pool	Curve fxUSD/GHO
Maverick BP 21	Maverick BP 37

Recommendation

Current market conditions support a further reduction in the Borrow Rate to promote GHO borrowing over other stablecoins.

We recommend a 1.50% reduction, lowering GHO’s borrowing cost to approximately 1% below USDT, to incentivize borrowing on the Core Aave v3 instance.

The GHO Stewards will continue monitoring market conditions to assess future adjustments.

Specification

The GHO borrow rate is to be revised as follows:

Description	Current	Proposed	Change
Borrow Rate	10.50%	9.00%	-1.50%

This proposal is to be implemented by the GHO Stewards.

Disclosure

TokenLogic does not receive any payment for this proposal.

Next Steps

The GHO Stewards will implement this proposal.

Copyright

Copyright and related rights waived via CC0.

[Karpatkey]

The borrowing rate plays a critical role in regulating GHO’s growth, and a reduction appears to be the right course of action at this time. However, lowering the borrowing rate too much could impact the peg, which has recently stabilized. Specifically, a 9% borrowing rate would result in a 9.41% APY, which is lower than the USDS supply rate, creating an immediate incentive to borrow GHO at a fixed rate and arbitrage the rates within Aave itself.

As members of the GHO Stewards, we recommend adjusting the borrowing rate to 9.75%. This adjustment would result in an APY (10.24%) that remains lower than other borrowing rates while still exceeding supply rates, striking a balance between competitiveness and peg stability.

[TokenLogic]

The transaction for this proposal has now been executed, by the GHO Stewards.