It is amazing to see @AaveCompanies on the governance forum presenting revolutionary ideas and engaging with the community. GHO is a fantastic idea and launching it on the an established lending market which at its peak, held over $35b of liquidity and is governed by the 125,000 unique AAVE or stAAVE holders, makes a lot of sense to me.
The introduction of GHO on Aave v3 with E-Mode is going to enable some recursive yield arbitrage strategies which will become more profitable for users who hold stkAAVE. The net affect of this strategy will be to reduce borrowing rates across the platform and will lead to a higher TVL. Lower borrowing costs on stable coins in general is good for attracting borrowers.
If these yield arbitrage positions are not managed properly, like stETH and ETH recursive borrowing, there will be risk and opportunities for liquidators to maintain the health of the market. The supply cap (bucket) on GHO will be key to managing this at a system level. The Aave v3 functionality is perfect for managing the risks with bringing GHO to market. I’d be keen to build out a platform that shows the risks and help enable the community make informed decisions around the governance of GHO - I think this is a key aspect for facilitators to understand.
With 100% of the interest from borrowing GHO going to Aave DAO’s Treasury, this is going to be, not just a new source of revenue, but a very material revenue source. I am expecting this to be very lucrative for the Aave community. The introduction of GHO across all the different markets and ability to move funds seamlessly between the various networks will be a unique advantage to Aave who has been very proactive in deploying on other networks. The competitive edge of GHO will become increasingly apparent in time to come.
The facilitator role is interesting, the Aave DAO elects a facilitator via governance and then sets the supply limit on GHO that facilitator could deploy into the chosen market. This is an interesting concept of placing trust in an entity to manage supply of GHO. If this is like the Gauntlet and Bored Ghost Developing relationships, then it is an opportunity to welcome another key player into the Aave ecosystem. I am keen to see who emerges in this space.
I like how stkAAVE holders receive a discount when minting GHO and I think that is an elegant way of incentivising the use of GHO relative to other stable coins. I would expect the minting GHO incentives to be less or equal to revenue generated by GHO over any extended time horizon, perhaps not at launch though. These incentives will bring more GHO into supply and that will lead to downward pressure on GHO spot price as any whale will mint GHO and swap it to another stable coin.
I wonder how the minting incentives will interact with various other stable coins and their mechanisms. I would assume other over collateralised stable coins must now be considering offering similar incentives to borrowing/minting their stable coin. Lower net interest rates via incentives for borrowing or airdrop upon borrowing…
Creating deep liquidity for GHO will be a priority and the idea of incentivising liquidity on a DEX using GHO rather than stkAAVE or AAVE is an interesting thought - kind of like how Curve uses the 3crv token within the veTokenomics model. The GHO/stable coin pairs on Uni v3 and multi asset pools on Balancer v2 which tap into Aave’s lending market yield seem like ideas worth exploring. Balancer as an asset manager is compelling for helping drive TVL/revenue back to Aave markets.
This is very interesting, I am fan of the free markets when it comes to pricing debt. I am hoping this is not a fixed borrowing cost but rather a mechanism for variable interest rate loans.
Fixed Interest Loans is worth exploring, especially if there can be bond auctions with various loan durations. I wonder if we will see a facilitator emerge who acts like a auction house that sells bonds whereby bidders either post some collateral or have received delegation from other investors on Aave’s platform. By being able to mint a stable coin like GHO which is integrated into a lending market will provide a unique positioning in the market.
I am a big fan of GHO and I think it will do quite well within defi. I am excited to see what gets built on top of Aave markets at Hackathons as I think there are some unique advantages which can be tapped into relative to other stable coins in the market. The continuous innovation from Aave Companies and broader community is incredible.