Summary
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.
Source: TokenLogic GHO Analytics, 27th December, 2024
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.