Gauntlet is looking forward to the implementation of GSM for GHO. The innovative features of the GSM can help mitigate risks we discussed in our previous analysis, including low liquidity and usage and high supply relative to liquidity. For instance, the GSM will be highly important when GHO goes < $1 to help restore it back to $1. In general, the GSM will help mitigate potential price manipulation for GHO, especially since Emode minting can lead to premature GHO supply explosion relative to insufficient DEX liquidity.
- The price strategies feature of GSM can help stabilize the peg of GHO by adjusting the ratio of price between GHO and the exogenous asset. Gauntlet supports the initial use of a fixed pricing strategy at launch. There are many potential dynamic pricing strategies that can be considered in the future, however, their impact on GHO can be complex and would require additional in-depth analysis.
- By limiting exposure to specific assets, the debt ceiling can help mitigate the impact depreciating underlying assets can have on GHO price. Without a debt ceiling, the GSM can be overexposed to these depreciating assets, making it difficult to maintain the peg of GHO.
- The capital allocator mechanism can be a potential growth generator for GHO. Setting the configurable threshold would require analysis of the risk-reward tradeoff of the exogenous assets, depending on factors including their liquidity, volatility, and yield.
- The last resort liquidations, price bounds, and swap freezes are important measures to be put in place to protect the stability and peg of GHO in the worst-case scenarios. These methods will help serve as last resort levers in case underlying assets in the GSM are suddenly depreciating.
Ultimately, carefully balancing underlying assets in the GSM - especially during abnormal market events - will be something to focus on, especially since Emode minting capabilities for GHO can rapidly contribute depreciating underlying assets to the GSM and concurrently depress GHO prices.