Aave raises GHO borrow rates in bid to restore stablecoin reserves

Aave has increased the borrowing rate for its stablecoin GHO to 4.5% on the Ethereum Core market, aligning it with the savings rate reported by TokenLogic on October 2. This adjustment aims to replenish depleted USDC GHO Stability Module (GSM) reserves by incentivizing borrowers to repay their loans through the modules, which would introduce stablecoins into the reserves.

The change comes after Aavescan data showed a 4.25% borrow APR on October 3, which rose to 4.5% by October 4 and remained at that level on October 5. TokenLogic had proposed this increase to eliminate a 25-basis-point gap where borrowers could pay 4.25% to acquire GHO on Core and earn 4.5% in sGHO, leaving the DAO to cover the difference.

However, the effectiveness of this rate hike depends on borrowers acquiring repayment GHO through the GSMs, as buying GHO on the secondary market does not add stablecoins to the reserves. Aave's documentation notes that sGHO can be instantly redeemed for GHO, but users needing USDC or USDT must convert separately. The outcome will hinge on whether borrowers choose the route that benefits reserve liquidity.

Additionally, Aave Labs is seeking a facilitator to distribute 25 million GHO and another route to borrow up to $25 million of USDC or USDT against DAO balance sheet assets. This proposal, which advanced to Snapshot on October 1, includes conditions such as matched sGHO inflows lasting the duration of the borrower's draw, ensuring that liquidity pressure is resolved.