Aave boosts GHO borrowing rate to restore stablecoin reserves

Aave has increased the borrowing rate for its stablecoin GHO on the Ethereum Core market to 4.5%, aligning it with the savings rate reported by TokenLogic on October 2. This adjustment aims to replenish depleted USDC reserves in the GHO Stability Module (GSM). The higher rate is expected to incentivize borrowers to repay their loans using stablecoins, thereby restoring the reserve inventory.

The change follows a report by TokenLogic, which noted that borrowers could previously acquire GHO at a 4.25% rate on Core and earn 4.5% in savings tokens (sGHO), leaving the DAO to cover the 0.25% difference. The new rate eliminates this gap, aligning borrowing and savings rates at 4.5%. However, the effectiveness of this measure depends on borrowers depositing stablecoins into the GSMs.

Aave’s documentation explains that sGHO tokens can be instantly redeemed for GHO, but converting GHO to USDC or USDT requires additional steps. The success of the rate hike hinges on borrowers using the GSMs to repay loans, which would directly contribute to the reserve inventory. As of October 5, the outstanding GHO debt slightly decreased from 116 million to 115.8 million, but this alone does not confirm improved liquidity.

Aave Labs has proposed an institutional funding arrangement, seeking a facilitator to distribute 25 million GHO and a separate route to borrow up to $25 million in USDC or USDT against DAO assets. The proposal, which advanced to Snapshot on October 1, includes conditions to ensure matched inflows last the duration of the loan, addressing liquidity pressures.