The concept of using GHO for on-chain savings aligns with expanding its utility. However, it’s essential to consider the GSM’s current limitations. Minting GHO via the GSM does not ensure 1:1 redemption at any point in the future, as it depends on the sufficient float, which can deplete quickly during market stress or GHO depegs.
We can explore similarities between GSM and PSM mechanisms and consider the factors that would help ensure longer-term 1:1 swap guarantees for GSMs.
Sky PSM Flow
LitePSM USDC A is utilized by Sky protocol to maintain a 400M DAI buffer, with its USDC reserves held in the PSM Pocket. Currently, the PSM holds 3.27B USDC, with a theoretical ceiling of 10B. These reserves are collateral for minting USDS and sUSDS (equivalently DAI/sDAI). While PSM can be interacted with directly to perform 1:1 swaps, the illustration below details the underlying process of minting sUSDS by depositing USDC via PSM.
sUSDS Mint Using USDC. Source: Etherscan, January 27th, 2025.
PSM Usage
Unlike GSM, which is primarily used for price arbitrage when discrepancies arise between USDT/USDC/GHO secondary market prices, the PSM does not exhibit these flows. This difference in usage stems from the fact that the PSM is also utilized in the sUSDS minting process. As explained previously, in this process, USDC is deposited into the PSM to mint DAI, which is then converted into the yield-bearing sUSDS.
Reserves vs DAI & USDC Market Prices. Source: Dune, February 6th, 2025
The usage of the PSM can be linked to the Sky Savings Rate (SSR). When the SSR exceeds broader market yields, the USDC balance in the PSM module increases, signaling the attractiveness of holding sUSDS. This pattern was evident in September and October 2024, when the SSR ranged between 6.25% and 6.5%, while market sentiment remained neutral. In November 2024, favorable market conditions led to a sharp rise in yields offered by other platforms, reducing the appeal of holding sUSDS. This was reflected in a decrease in the USDC balance within the PSM. However, as the SSR was raised to 12.5% and market positivity dissipated, USDC holdings in the PSM began to increase sharply again. This supports the hypothesis that PSM is used for holdings.
Sky Savings Rate. Source: Sky Ecosystem Dashboard, February 6th, 2025
Nonetheless, similarly to the GSM, the swap aggregators, MEV Bots, and other automated entities mainly execute interactions with PSM. Around 10% of interactions are made by the USDS PSM Wrapper, which, as explained above, performs the sUSDS minting procedure. Therefore, this PSM Wrapper part can be attributed to the longer-term holdings in the PSM, which remain in the PSM according to the attractiveness of SSR yield opportunity.
User Distribution by PSM Interaction Volume. Source: Dune, February 6th, 2025
To analyze the shorter-term “piggy bank” operations where PSM is used as a deposit vault ensuring 1:1 swaps at a later time, we have inspected the wallets with smaller amounts of interactions (<500) but executing both USDC deposit and withdraw actions. The findings indicate that most deposits were short-term (<10 days). Nonetheless, there were still ~230 instances where PSM was used as a longer-term 1:1 swap guarantor.
PSM Deposit Duration. Source: Dune, February 6th, 2025
Considerations
Based on the above findings, the PSM can guarantee longer-term deposits due to the direct integration with sUSDS minting. Corresponding USDC amount deposited in the module serves as a stable liquidity source. Therefore, even large volumes in aggregator and MEV swaps do not cause the PSM to become imbalanced. If GSM is integrated to serve as a deposit vault for direct yield source, it will reach properties similar to PSM’s. In that case, we could also expect increased revenues for Aave’s DAO as GHO supply and usage would increase. However, at the current setup, we believe that the activity of automated actors would only become more apparent if the swap fees are set to 0, which in turn could cause instability in the GSM deposits and nullify expected revenue of the upcoming stataUSDT/stataUSDC GSM integration.