Aave Adjusts GHO Borrowing Rate to Align with Savings Yield

Aave has updated the borrowing APR for GHO on its Ethereum Core market to 4.5%. This adjustment, which was reflected in Aavescan data by Oct. 5, aligns the borrowing cost with the 4.5% savings rate reported by TokenLogic on Oct. 2.

Previously, borrowers could acquire GHO at a 4.25% rate while earning 4.5% through the savings vault, creating a 25-basis-point gap that the DAO had to fund. By raising the borrowing rate, the protocol has eliminated this discrepancy.

The effectiveness of this rate change in improving liquidity depends on how borrowers choose to repay their debt. Repayments only replenish the GHO Stability Module reserves if borrowers use USDC or USDT to acquire the GHO needed for repayment. If borrowers purchase GHO on the secondary market instead, the reserves remain unaffected.

TokenLogic noted that the USDC GHO Stability Module was depleted as of Oct. 2. While a higher borrowing rate may influence repayment incentives, the protocol still requires stablecoins to enter the modules to facilitate conversions for sGHO holders.

Aave’s documentation specifies that sGHO is redeemable for GHO, but converting that GHO into USDC or USDT requires a separate process that relies on available inventory and liquidity. Factors such as user-specific withdrawal limits, pause states, and cross-chain bridge settings can also impact the availability of these assets.

Aave Labs has also proposed an institutional funding route that would allow borrowing up to $25 million in USDC or USDT against DAO balance sheet assets. TokenLogic has suggested that for such arrangements to resolve liquidity pressure, matched inflows must persist for the entire duration of the loan.

Ultimately, the impact of the new 4.5% rate on conversion liquidity remains to be seen. Success will be measured by whether stablecoin inventory remains available for conversion after accounting for fees, pool cash, and cross-chain accessibility.