Aave Eyes Higher GHO Borrowing Rates to Boost Reserves

Aave is considering a proposal to raise borrowing rates for its stablecoin, GHO, on the Ethereum network. The move aims to address dwindling reserves and incentives that encouraged borrowers to deposit GHO in Aave’s savings product at a higher rate than they borrowed it. On Ethereum’s Core market, the annual rate would increase to 4.50% from 4.25%, matching the Aave Savings Rate. Meanwhile, Ethereum Prime’s base rate would rise to 3% from 2.75%, with the estimated Prime borrowing rate climbing to 4.17% from 3.92% at 86% utilization.

The proposal seeks to close a gap where borrowers could profit from a 25-basis-point difference between borrowing and saving rates, leaving the DAO to cover the cost. Currently, the USD Coin (USDC) GHO Stability Module is depleted, while the Tether (USDT) module holds about 22.5 million USDT. GHO has traded below $0.999 for most of September, ending October 1 near $0.9993.

Higher borrowing costs could encourage borrowers to repay GHO, but the impact on reserves depends on how borrowers obtain GHO for repayment. Those using Stability Modules would add USDC or USDT to reserves, while those buying GHO on the secondary market would not. Continued deposits into the savings product could mitigate some decline in borrowed GHO.

The proposal also links reserve depth to planned institutional lending using GHO. Initial loans would use DAO balance-sheet funds, while expanding the activity would require more USDC through Stability Modules. However, changes to borrowing rates alone do not ensure easier stablecoin withdrawals for sGHO savings token holders.