I want to share my experience as a new member of the AAVE ecosystem.
I joined approximately 2 months ago and was really fascinated by the premise of GHO being promoted as a native stablecoin with a fixed borrowing rate.
Like many other users, I borrowed a substantial amount of GHO (7 figures) and then converted it into assets that I had purchased as part of my strategy.
It is very important to emphasize that when I borrowed, the rate was ~1%. Because of the rate difference between it, USDT and USDC, GHO was in low demand and I ended up paying a “premium” on the conversion which resulted in an immediate loss of ~3% on the total amount.
The notion of doing it was in the context of locking on to the borrowing cost up-front.
1 month later I realized that the publicly promoted “Fixed rate” had changed to 2.5%.
Today I see that the same “Fixed rate” has changed to 3%. Tomorrow maybe it will go up to 10%? From what it feels, GHO is just an extension of USDC and USDT with a fake promise of stability.
The takeaway of this whole experience has left a very bitter taste. What I believed was that the borrowing rate would be stable, at the expense of the market rate of GHO which can be dynamic and not necessarily with a strong peg, as the market demand shifts the rate based on the relationship of the GHO rate vs the USDC and USDT. Trading off permanent borrowing costs, for impermanent loss risk management.
This model turned it into a long-term instrument for onboarding new investors and facilitating stickiness which from my perspective can build vasts amount of TVL onto the protocol.
If it hadn’t been for the GHO, I would have probably deposited my collateral on Compound due to the better overall rates that were at the time.
From a user experience, the whole orchestration of the rollout of GHO is a disaster, because it is mostly based on fake promises of fixed borrowing rate. GHO borrowing rate is highly dynamic as we can see and the DAO just acts as a flexible price oracle.
Believing in the fixed borrowing rate, I accepted paying 3% “up-front” in costs through the 0.97 rate at the time of converting, only later to find GHO having identical borrowing APR as USDC. Essentially doubling the cost. Right now USDC is offered at 3% and I ended up with a 6% cost for my GHO.
If I had borrowed in USDC, I would ve saved myself tens of thousands of dollars in losses.
Being an early adopter of GHO and having believed in the “fixed rate” promise, It turns out that I get penalized for that.
This is a huge blow to the trust factor in the protocol for me.
Please update your UI to stop luring people into believing GHO has a fixed borrowing rate. This is highly deceptive and not worth the reputational risk. Once this thing hits a 10% borrowing rate, it will be a shitstorm. There are probably 3-4 key UI elements that outline that GHO is offered at a fixed rate.
As arguments for managing the tentative peg:
- when the supply is depleted, the rate will get back as LPs will be incentivized to buy
- LPs will be willing to buy GHO if they know the DAO can’t front-run them by changing the market rate
- Create an incentive for LPs
- Leave the peg a bit loose, as there’s no issue in having a ~5% deviation. It’s transparent, its predictable and it allows borrowers to do their own strategy. IT self-adjusts based on the market and is a fair system with no centralized intervention.
- Most importantly it corresponds with the message that has been conveyed so far to the users who borrowed 25M+ of GHO
I had a 2-year plan related to GHO, which turned into a disaster. I will now have to buy much higher than I sold, because of the intervention of the DAO and the deceptive UI.
You can either have a fixed borrowing rate or a fixed peg. You can’t have both. And you already promised one of them.