GHO Stability Module Update

GSM Launch Conditions and Parameter Recommendations

Gauntlet and @ChaosLabs recommend the following GSM launch conditions and parameters. We recommend GSM launch after GHO is consistently trading within ($0.995, $1.005) to avoid GSM reserve depletion.

GSM Launch Conditions

We recommend the following to hold before GSM is launched, most importantly the price condition (> $0.995).

  • GHO should consistently be trading > $0.995, i.e. hourly moving average > $0.995 (price at peg)
  • 30-day period with GHO trading consistently above $0.97 before launching the GSM.
  • GHO annualized volatility < 10% (price stability)
    • Current GHO annualized volatility is ~10%

GSM Parameters

Conditioned on the above holding, we recommend the following updated parameters for the GSM.

  • Freeze / unfreeze
    • freeze at (0.99, 1.01)
    • unfreeze at (0.995, 1.005)
  • Buy/sell fee
    • 0.2%
  • GSM caps
    • 3.5m for USDC, USDT

Freeze / unfreeze parameters
These bounds on the freeze/unfreeze parameters should apply to both USDC and USDT market price, as well as GHO/USDC, GHO/USDT ratios, as demonstrated by the USDC depeg during March 2023 and how it affected the DAI PSM. During the USDC depeg, the USDC reserve supply ballooned in the DAI-USDC PSM. This caused DAI to lose its peg since a growing amount of DAI was becoming backed by USDC.

DAI-USDC PSM behavior during USDC depeg

As such, having freeze/unfreeze bounds on the USDC/USDT side may mitigate GHO depegs when USDC or USDT depeg. Having freeze/unfreeze bounds on the GHO side may prevent excess drainage of the USDC/USDT in the GSM.

Buy/sell fees
We recommend initializing with buy/sell fee at 0.2%. We are exploring more sophisticated fee strategies. As of now, it is unclear how targeted fee strategies (for instance, fees dependent on difference to $1 peg) can benefit GHO peg more than constant fee strategies.

The recommendations provided above are based on the current market conditions and are intended for reference purposes. Prior to the launch of the GSM, we will revise all recommendations, with a particular focus on GSM caps and Buy/Sell fees, once the conditions mentioned above are met. This update is necessary to accommodate any changes in the market and GHO conditions that may significantly impact the recommendations. These conditions include stablecoin borrow rates, GHO market cap, liquidity, and more.