Aave Proposal Would Raise GHO Borrowing Rates as Reserves Run Low

Aave’s proposed increases to GHO borrowing rates on Ethereum would make loans more expensive, while reserve recovery would still depend on how borrowers obtain GHO for repayment.

The proposal would raise the annual rate on Ethereum’s Core market to 4.50% from 4.25%, matching the Aave Savings Rate. On Ethereum Prime, the base rate would increase to 3% from 2.75%. At 86% utilization, the estimated Prime borrowing rate would rise to 4.17% from 3.92%, with the rest of the rate curve unchanged.

The Core adjustment addresses an incentive to borrow GHO at 4.25% and deposit it in Aave’s savings product at 4.50%. That 25-basis-point difference left the DAO to cover the gap.

The USD Coin (USDC) GHO Stability Module was depleted, while the Tether (USDT) module held about 22.5 million USDT. GHO traded below $0.999 for most of September and ended Oct. 1 near $0.9993.

Higher borrowing costs could encourage borrowers to repay GHO. Those who get GHO through a Stability Module would add USDC or USDT to its reserves when they do; borrowers who buy GHO on the secondary market would not replenish those modules. Continued deposits into the savings product could offset some decline in borrowed GHO.

Aave’s sGHO savings token is redeemed for GHO. Holders seeking USDC or USDT then need a separate conversion through available market liquidity or a Stability Module, so a change to borrowing rates alone does not ensure easier stablecoin withdrawals.

The proposal also connects reserve depth to planned institutional lending using GHO. Initial loans on the proposed route would use DAO balance-sheet funds, while expanding the activity would require more USDC to be available through the Stability Modules.