This is a great proposal for Aave and increasing decentralized stablecoins adoption.
I do want to call out that borrowing interest rates cannot be controlled by the DAO. They need to be variable or fixed but be completely market-driven. There is ample literature and historical examples in TradFi and DeFi that pegged currencies (or stablecoins in this case) cannot have all three at the same time:
- Free flow of capital (in and out)
- Independent monetary policy (money supply or interest rates)
- Peg stability
Setting arbitrary interest rates controlled by the DAO will lead to markets out of equilibrium at the expense of capital controls (controlling minting/redeeming mechanism) OR the peg stability OR even both. UST wanted to achieve all three which led to significant capital imbalances. I am aware this is not an algorithmic stablecoin but please look further than this analogy to analyze if borrowing interest rates have to be really controlled by the DAO rather than be market-driven. In events where GHO depegs, an algorithmic interest rate model can increase borrow rates to induce demand for GHO and restore peg. Vice-versa to when GHO exceeds $1. This will of course impact the DAO revenue and make it less predictable but that seems worthwhile to having an artificial temporary balance of freely trading stablecoin with arbitrary interest rates and fixed peg.
If you want GHO to succeed, consider borrowing interest income as secondary consideration otherwise you are falling into the fallacy every country with a pegged currency has made and ultimately failed.