Aave raises GHO borrow rates to boost 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 Oct. 2. This adjustment aims to replenish depleted reserves in the $USDC $GHO Stability Module (GSM) by incentivizing borrowers to repay their loans through the modules.

The change in borrowing rate is expected to influence whether borrowers acquire repayment $GHO through the GSM or the secondary market. While a higher borrowing rate may encourage repayment, the actual impact on reserves depends on whether borrowers bring stablecoins like $USDC or $USDT into the GSM. Simply reducing outstanding debt does not necessarily improve conversion liquidity if stablecoins do not enter the reserve.

Data from Aavescan shows that the $GHO borrowing rate on Core was 4.25% on Oct. 3 and increased to 4.5% on Oct. 4 and Oct. 5. TokenLogic proposed this change to eliminate the gap where borrowers could pay 4.25% to acquire $GHO on Core and earn 4.5% in sGHO, leaving the DAO to cover the 25-basis-point difference.

TokenLogic also highlighted the importance of repayment routes for replenishing reserves. Borrowers can either buy $GHO on the secondary market or exchange stablecoins through a GSM. The latter method adds inventory to the reserve, which is crucial for maintaining liquidity. However, the effectiveness of the rate increase in improving $USDC conversion liquidity remains uncertain without stablecoins entering the reserves.