Aave Raises GHO Borrow APR to 4.5% to Match Savings Rate

Aave increased the Core GHO borrow rate to 4.5% on October 4, aligning it with the sGHO savings rate to eliminate an arbitrage opportunity that was draining stablecoin reserves.

The adjustment closed a 25 basis point gap that had allowed borrowers to acquire GHO at 4.25% while earning 4.5% annually in the sGHO savings token. “Borrowers could previously pay 4.25% to acquire GHO on Core and earn 4.5% in sGHO, leaving the DAO to fund the 25-basis-point difference,” TokenLogic, a DAO service provider, said in a statement reported on October 2.

The rate increase addresses a liquidity crisis in Aave’s Stability Modules (GSMs), which allow borrowers to exchange USDC or USDT for GHO. Repayments only replenish stablecoin reserves when borrowers deposit stablecoins into the modules; secondary-market GHO purchases do not add to module inventory. TokenLogic reported that the USDC GSM on Core had become depleted by October 2, constraining redemptions.

As of October 5, 115.8 million GHO was borrowed on Core. The rate change follows a governance proposal from Aave Labs that advanced to Snapshot on October 1, based on a data snapshot from September 24. Kairos Research published analysis of the liquidity strain on September 8, identifying inventory constraints across Aave’s cross-chain GSM network.

Stablecoin Inventory and Cross-Chain Constraints

The liquidity pressure stemmed from uneven stablecoin distribution across Aave’s GSM infrastructure. As of September 24, the protocol held 19.2 million USDT on Ethereum and 40.7 million USDT on Plasma, totaling 59.9 million USDT across both chains. The USDT GSM on Core held 22.5 million as of October 2.

Plasma provides a potential USDT inventory route via Chainlink CCIP cross-chain bridge, but moving capital between chains requires time and conversion steps. Kairos Research estimated that moving 40 million GHO to Plasma would take approximately 9.7 hours due to rate-limit constraints on the bridge.

TokenLogic imposed a duration condition on any matched inflows used to replenish reserves. “Matched inflows must last at least as long as the borrower’s draw,” the firm stated. This requirement creates tension with sGHO’s mechanics, since deposited funds are not rehypothecated, raising questions about how long-term funding durability can be sustained without additional liquidity sources.

Proposed Facilitator and Fee Adjustments

Aave Labs proposed a 25 million GHO facilitator to expand borrowing capacity and a separate $25 million USDC or USDT borrowing route against DAO balance sheet assets. The proposal also included redemption fee adjustments: 15 basis points for USDC on Ethereum, Monad, and Arbitrum, and 10 basis points for USDT on Ethereum.

The borrow rate increase to 4.5% takes effect immediately. Whether the higher rate will generate sufficient stablecoin inflows to stabilize GSM reserves remains to be determined. TokenLogic’s analysis, reported October 2, indicated that matching inflows to borrower demand was the core mechanism needed to restore liquidity.