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

Summary

LlamaRisk supports the proposed updates to USDS (on Prime and Core) and GHO (on Prime) instances. Regarding GHO, continued stability and resumed supply growth enable more operating flexibility. The broader market’s borrow interest has also decreased, resulting in less yield-leveraging activities and reducing potential secondary market sell pressure on GHO. As indicated in previous GHO-related proposals, we should monitor for changes in leveraging activities and borrow rates of other established stablecoins on Aave’s instances to manage stability risks proactively. As for USDS, the changes are self-explanatory and align with the changes in Sky Savings Rate.

GHO Liquidity & Utilization

After a period of instability in November 2024 and subsequent risk measures, GHO’s sell-side liquidity has gradually increased. At the time of writing, sell-side liquidity under 1% price impact fluctuates between 3.4m and 5m. This is lower than previous levels but reflects GHO’s supply trends and is expected to continue increasing.

Source: TokenLogic GHO Analytics, 5th of February, 2025

It should be noted that the sell-side liquidity has been growing along with GHO’s supply. This indicates that minted GHO is redirected to other DeFi venues, shifting the secondary market pressures. More precisely, there has been resumed growth in stkGHO supply, with part of that amount (20m) being redirected to Spectra’s platform. Fluid integration has also been successful, resulting in 11.5m of GHO supplied in this venue.

Source: TokenLogic GHO Analytics, 5th of February, 2025

Source: DefiLlama, 5th of February, 2025

This indicator of improving stability can be continued thanks (@TokenLogic) to a measured approach to managing GHO borrow rates and utilization.

Borrow rates

At the time of writing, GHO Stewards have implemented a reduction in GHO borrow rates on Prime instance. The non-discounted rate is now 8.33%, which is still slightly above the borrow rates of USDC, USDT, and DAI. USDS has a higher borrow rate temporarily until the changes in this proposal are implemented. All of this is in line with the rationale of keeping GHO’s borrow rate on par with rates of established stablecoins on Aave’s Core instance.

Source: Aave Core, 5th of February, 2025

These borrow rates are still attractive to borrowers, as reflected in the borrow cap utilization. We currently see no incremental risk if this supply cap is to be further increased after this proposal is implemented.

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.