[TEMP CHECK] GHO Aave Savings Upgrade
title: [TEMP CHECK] GHO Aave Savings Upgrade
author: @TokenLogic @ACI
created: 2025-03-04
Summary
This proposal seeks governance feedback and consensus for creating sGHO and defining the Aave Savings Rate (ASR).
Motivation
Aave’s GHO stablecoin is growing strongly during 2025 and is the 20th largest stablecoin. Whilst growth to date has been strong, growing from 200M to over 300M presents a different set of challenges requiring a different approach.
To date, stkGHO launched by @ACI, rewards users for contributing to the protocol’s security, has been instrumental to GHO’s growth journey and currently represents 67% of GHO’s circulating supply. After the Umbrella upgrade, stkGHO will remain vital to Aave Protocol’s security and is expected to transition towards a size reflective of the protocol’s security needs.
By sizing stkGHO to reflect the Aave Protocol’s security needs, this creates an opportunity for Aave to offer a variety of risk profile yield products. This presents an opportunity for the Aave DAO to introduce a new low risk profile saving product that is expected to lead the next chapter of GHO’s growth and adoption.
Introducing sGHO, a low risk savings product that rewards users for staking GHO by earning the Aave Savings Rate (ASR), that compounds over time.
sGHO
By depositing GHO into sGHO, users will earn the Aave Savings Rate by holding an ERC-20 receipt token accruing value over time which is easily integrated with other protocols.
sGHO is to be sustained from revenue generated by Aave Protocol and is specifically designed to have the lowest risk profile of Aave DAO’s yield product offering.
The below outlines key benefits of sGHO’s design:
- Interest compounding Aave Savings Rate;
- No rehypothecation providing instance liquidity;
- Minimal smart contract risk surface area; and,
- No Deposit or Withdrawal Fees.
A configurable Aave Savings Rate provides the DAO with sufficient flexibility to offer either a fixed or variable savings rate that moves with the broader market conditions.
Re-hypothecation
To minimise risk, deposited GHO will remain in the sGHO contract and shall not be deployed to generated yield. This ensures liquidity is always available for users to withdraw and users are not exposed to any protocol risk.
Whilst depositing GHO held within sGHO appears to be the most capital efficient path, this introduces some exit liquidity risks whereby GHO deposited into a protocol can be borrowed by another user. By using a facilitator to Mint and deposit GHO into the yield source, the same capital efficiency upside can be acheived in a more controlled manner.
Facilitator
With sGHO expected to create substantial demand for GHO, facilitators are to provide liquidity for user to access GHO. stataGSMs are to provide GHO liquidity via aggregators to avoid GHO deviating from peg whilst other facilitators support GHO being borrowed into circulating supply.
New Facilitator(s) can Mint and deploy GHO to earn yield. In doing so, rather than deploying GHO held within the sGHO contract, GHO can be Minted and deployed in a controlled manner by the Gho Stewards. This approach preserves the utilisation of liquidity within reserves enabling it to be optimised for achieving a intended borrow rate and maintaining the peg.
Furthermore, Minting GHO via a facilitator increases GHO circulating supply when borrowed. Overal, this approach is similar to how the Gho Stewards manage GHO and how Sky manages USDS on the Prime instance.
The process of depoloying any additional GHO facilitator(s) is controlled by DAO governance and will be handled separately to this proposal.
Supply Cap
With each unit of sGHO being minted, the Aave DAO provides a defined amount of yield that extends the DAOs financial outlay. In isolation, as the portion of GHO held by sGHO increases, the revenue derived from GHO is distributed across the larger sGHO holding base results in either the Aave Savings Rate being revised lower, or requiring additional funding to sustain the savings rate.
To facilitate processing large withdrawals from sGHO and users exchanging GHO to another asset, DEX liquidity and GSM holding balances are key to sustaining the peg. With these interwoven co-dependencies in place, a Supply Cap on sGHO is proposed. The sGHO Supply Cap will be maintained by the Gho Stewards.
Fees
To enhance the user experience, there are no deposit or withdrawal fees applied to sGHO. Being a yield product, creating friction via fees would act to reduce the appeal of the offering placing sGHO at a disadvantage to similar offerings available in the market.
Introductin Aave Savings Rate
Before reading on, a brief recap of some key terms referenced within.
i) Deposit Yield = Incentive Yield + Native Yield
Where,
Incentive Yield = Yield derived from incentives, commonly referred to as LM rewards.
Native Yield = Yield derived from fees native to Aave Protocol.
Deposit Yield = Total Yield user receives.
Across Aave Protocol there are two dominant stablecoins, USDC by Circle and USDT by Tether. USDT is the largest, with an emerging trend of some networks preferring to favour one stablecoin over another. Two fast growing networks, Base and Sonic both exhibit a clear bias for USDC over USDT, of which Base has generated substantial growth for Aave Protocol in recent months.
When comparing the Native Yield of USDC and USDT across variaous instances Aave Protocol, USDC was found to exhibit a less volatile and more consistent Native Yield relative to USDT. USDC offers both strong market correlation and lower volaility relative to USDT, both are favourable qaulities for deriving a market correlated savings rate.
The chart below shows USDT and USDC Native yield across Core instances on Ethereum, Arbitrum, Avalanche, Base and Optimism.
When specifically comparing USDT to USDC, the chart below provides a clear visual reflecting USDCs smoother Native yield profile relative to USDT.
The Core instance of Aave v3 on Ethereum offers the deepest USDC liquidity and for this reason, the Aave Savings Rate incorporated the USDC Native Yield Rate from the Core instance on Etheruem as its preferred Index Rate .
The Aave Savings Rate definition:
Aave Savings Rate = Amp x Index Rate + Premium
Where,
Index Rate = Representative of market conditions
Amp = Amplification Factor
Premium = Nominal Amount
A linear function provides sufficient flexibility to curate the yield to be either variable or fixed and to change the Index Rate to which the Aave Savings Rate is correlated to. The Amp can be adjusted to offset periods of low USDC utilisation, whilst the Premium allows for a discrete amount of extra relative yield to be applied.
Whilst the Aave Savings Rate is expected to exceed the GHO Borrow Rate, the differential is to be managed such that it encourages adoption whilst being insufficent to promote arbitrage.
Beyond 200M GHO Growth Phase
sGHO is the next step towards realising GHO’s longer term growth potential, and with a very well capitalised balance sheet, Aave can accelerate the next chapter of GHO’s growth potential.
The introduction of the Aave Savings Rate is expected to stimulate demand for GHO that will initially improve the peg and then lead to new GHO entering circulating supply via the stataToken GSMs. During the early growth phase for GHO, significant traction was achieved by aggressively incentivising growth and then tapering rewards to retain the growth.
Aave DAO is in a very fortunate financial position that is supportive of pursuing an aggressive growth strategy that captures the upside during what is a depressed yield market relative to late Q4, 2024. Launching sGHO with a premium to other similar savings products is expected to lead to significant growth whilst balancing the yield profile as to not overly encourage arbitraging the GHO Borrow Rate and Aave Savings Rate.
The chart below shows sUSDe, SSR, USDC Native Yield and USDS Deposit Yield on Core instance.
In terms of risk profile, sGHO is most similar to sUSDS offering from the Sky Ecosystem. For sGHO to compete, given its relative size, a premium would be required to attract meaningful amounts of capital. The USDS Deposit Yield realtive to the SSR highlights the premium for introducing Aave Protocol risk and the utility of being collateral.
On a risk adjusted basis, the Aave Savings Rate used for sGHO would fall somewhere between the SSR and USDS Deposit Yield on Aave from a competition for capital perspective.
Further details on the precise Aave Savings Rate to be used when sGHO launches will be provided in the ARFC stage of the governance process.
Sustainability
During the expansion phase, the Aave Savings Rate is expected to present an appealing interest rate that exceeds the GHO Borrow Rate and the Native Rate of the assets held within the stataGSMs. Especially during the early growth stage, the overal economic balance of GHO revenue and costs is going to be heavily shaped by the proportion of GHO’s circulating supply deposited in sGHO.
The below highlights current and near term GHO revenue sources:
- GHO Borrowed via Core instance;
- stataToken GSM holdings; and,
- Facilitator liquidity deposits.
Borrowing GHO that has been minted by a facilitor, generates revenue for the DAO through either Borrow Interest like on Core or Native Yield plus Reserve Factor fees as on Prime.
stkGHO
Longer term, right sizing stkGHO reflecting the Aave Protocol’s security needs, is expected to free up budget contributing to sustaining sGHO. Allocating budget from stkGHO to sGHO is exected to reduce per unit of GHO staked spend and lead to an increase in the circulating supply of GHO. This transition is expected to materially impact GHO’s revenue upside.
Details relating to the optimal yield and amount of stkGHO are presented in the Umbrella forum post.
stataGSM
The rollout of stataGSMs across Ethereum, Arbitrum and Base is expected to improve the DAO’s revenue streams with currently idle capital being deployed to earn yield for the Aave DAO. On Arbitrum and Base, the GSMs will provide users with the ability to Transafer GHO into circulating Suppy.
Specification
This proposal is to be further refined at the ARFC stage, the following summarises the key characteristics of sGHO:
- No Re-Hypothecation minimising smart contract risk;
- Facilitators are to be used to Mint and Deploy GHO for yield;
- No Deposit & Withdrawal Fees promoting frictionless user experience;
- Introduce a Supply Cap to limit DAO’s financial exposure; and,
- Aave Savings Rate set by GHO Stewards determines sGHO yield;
Execution and implementation is to be a collaboration between by Aave DAO service providers.
The Aave Savings Rate, budget and sGHO paramaters are to be finalised during the ARFC stage of the governance process.
Disclosure
The TokenLogic team extends its sincere gratitude to all Aave service providers, delegates, and community members who contributed to this proposal’s peer review. Your expertise and insights have been invaluable in refining and strengthening this TEMP CHECK.
Next Steps
- Gather feedback from the community.
- If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
- If Snapshot outcome is YAE, escalate this proposal to the [ARFC] stage.
Copyright
Copyright and related rights waived via CC0.
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