This publication proposes reducing the GHO Borrow Rate by 1.00% on Core and is to be implemented by the GHO Stewards.
Motivation
The below provides insights into GHO’s recent performance.
Circulating Supply of GHO has been contracting since late November 2024.
Staked GHO has been in decline from 120.5M to 101.3M between 8th to 26th December 2024.
GHO within DEX liquidity pools peaked early December 2024. Meanwhile overall AUM in DEX liquidity pools has reduced from 38.3M to 32.4M between 8th to 26th December.
The composition of the 3pool on Balancer has improved with the composition of GHO reducing from 72.0% to 47.6% between 8th to 26th December.
A new Boosted Pool was deployed recently on Maverick v2 and contains a 1.46M buy wall supporting GHO’s peg.
GHO’s Borrow Rate exceeds that of USDC and USDT on the Core instance of Aave v3.
The data is smoothed using a 7 daily moving average.
There are 1.6M USDT in the GSM and minimal USDC.
Recommendation
Observing continued outflows from stkGHO and reduction in GHO circulating supply due to debt being repaid, we recommend reducing the Borrow Rate for GHO on the Core instance of Aave by 1.00%. This proposal is supported by the GHO Stewards.
Specification
The GHO borrow rate is to be revised as follows:
Description
Current
Proposed
Change
Borrow Rate
14.50%
13.50%
-1.00%
This proposal is to be implemented by the GHO Stewards.
Disclosure
TokenLogic does not receive any payment for this proposal.
Next Steps
Using the Direct-to-AIP process, the GHO Stewards will implement this proposal.
LlamaRisk supports the proposed changes and believes that the GHO borrow rate adjustment would not impact the stability of the stablecoin. These changes could also help to facilitate growth.
As discussed in a related governance topic, GHO peg is highly impacted by the GHO’s borrow rate discount in comparison to other borrowable stablecoins on Aave Core. While the borrow rate can remain at a larger discount during less volatile market conditions, it is important to proactively increase GHO borrow rates when leverage of volatile assets becomes more broadly observed.
Over the past month, in order to stabilize the peg, GHO borrow rates have been raised to reflect the broader market’s borrow rates. As outlined by current data presented by @TokenLogic, the GHO secondary market peg has been successfully stabilized. This is further supported by the increase in GHO sell buffer under 1% price impact, which is now above 2M GHO after dipping to as low as 500k in the end of November.
As borrow rates for major stablecoins on Aave V3 Core have decreased, GHO’s borrow rate now stands approximately 2% higher than the broader market rates. This provides an opportunity to reduce GHO’s borrow rate without compromising its stability. Further adjustments may be considered as market conditions continue to evolve.
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.
Thank you for providing the community with an update on the GHO Steward activity.
As supporting information, this is the transaction reducing the borrow rate by 1%, reflecting the consensus reached among GHO Steward members (ACI, karpatkey, Tokenlogic, and CL).
In alignment with the GHO Steward mandate, a direct-to-AIP process is not required, as the parameter change has already been enacted through the transaction shared above.
