This is an archive of our post on Aave governance forum. Read the full thread here.

LlamaRisk supports the proposal to increase the GHO FlashMinter bucket capacity from 2M to 4M GHO. Given the continued growth of GHO’s market cap and the rising use of the ParaSwapDebtSwapAdapter, as highlighted by @chaoslabs, expanding the bucket capacity
will help accommodate the growing demand for GHO, mainly as stablecoin borrow rates remain elevated.

Stablecoin Borrow APR vs. Flash Mint Facilitator Volume.Source: AAVE, Dune, December 17th, 2024.

The comparative analysis of variable borrow APRs for USDT, USDC, and DAI alongside GHO Flash Mint Facilitator volume highlights the increasing utility of GHO flash mints as a response to elevated and volatile borrowing costs in the stablecoin market. While USDT, USDC, and DAI experienced average borrow rates of 7.29%, 7.78%, and 9.29% this year, respectively, borrow APRs spiked significantly during periods of market stress, particularly in April and late Q4 2024, surpassing 20% in some cases. This coincided with a noticeable GHO Flash Mint volume surge, particularly in Q4 2024, where multiple instances exceeded 2M GHO being flash minted daily, reflecting growing demand for cost-effective debt optimization mechanism like flash mint-driven debt swaps.

GHO Price Depeg.Source: ChaosLabs, December 17th, 2024.

We note that a potential drawback from increasing FlashMints capacity is their potential to temporarily impact GHO’s liquidity on DEXs, creating sell pressure that can push the price below the peg.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.