Aave raises GHO borrow rates 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. The move aims to replenish depleted USDC reserves in the GHO Stability Module (GSM) by incentivizing borrowers to repay their loans through the modules. However, the success of this strategy depends on borrowers acquiring repayment GHO through the GSM, which would bring stablecoins back into the reserves.
As of October 5, Aavescan data confirmed the 4.5% borrow APR, with the rate change occurring between October 3 and October 4. TokenLogic had proposed this adjustment to close the gap where borrowers could pay 4.25% to acquire GHO on Core and earn 4.5% in savings, leaving the DAO to cover the 0.25% difference. The new rate eliminates this discrepancy for the Core market, where the savings rate remains at 4.5%.
The effectiveness of the rate increase in improving USDC conversion liquidity remains uncertain. Repayment of GHO debt alone does not guarantee that stablecoins will re-enter the reserves, as borrowers might acquire GHO through secondary markets instead of GSMs. Aave’s documentation highlights that while sGHO can be redeemed instantly for GHO, converting it to USDC or USDT requires separate steps. The outcome hinges on whether borrowers choose to repay through the GSM, thereby restoring stablecoin reserves.
Additional factors, such as fees, cross-chain access, and pool liquidity, further complicate the situation. Aave Labs is exploring institutional funding options, including a proposal to borrow up to $25 million in USDC or USDT against DAO balance sheet assets. The proposal, which advanced to Snapshot on October 1, includes conditions to ensure matched inflows last as long as the borrower’s draw, addressing liquidity pressures. Ultimately, the higher borrowing rate marks a shift in cost, but its impact on liquidity will depend on how repayments and new deposits affect stablecoin reserves.