Abstract

The proposal to introduce a decentralized, overcollateralized stable cryptoasset, GHO, pegged to USD, has received overwhelming support from the community and was greenlit via snapshot. Governance has approved the Aave V3 Ethereum Pool to be the initial Facilitator at launch.

In this document, Aave Companies’ Risk Team investigates historical data to assist the community in launching and expanding a new stable-asset, GHO, which is governed by the Aave DAO.

We explore the stablecoin landscape both within the Aave Protocol and the wider Ethereum ecosystem, leading to the following recommendations and insights for the bootstrapping of GHO:

• GHO’s first Facilitator will be the Aave Protocol, allowing GHO to be minted by supplying specific collateral to Aave V3 on Ethereum
• At launch, GHO will be fully on-chain, safeguarded by the Aave Protocol’s embedded risk management tools and benefiting from its capital efficiency
• GHO’s competitive advantages include the ability to mint using a diversified basket of collateral assets, and earning a supply yield on that collateral
• With a minting rate in the market range of [1.5%-2.5%] partially offset by supply yields, GHO can offer competitive rates on borrowing
• GHO’s supply should be capped, increasing incrementally in phases to mitigate smart contract risk and to ensure sufficient market liquidity for peg stability
• GHO will need peg stability tools ready to support price stability, in particular, a custom stability module
• The Aave DAO treasury’s holdings could be used to strategically direct and fuel incentives to GHO DEX pools
• The Aave DAO will need to build a Credit Risk & Facilitator Framework to define new Facilitator bucket capacities

ToC

State of the Aave Protocol

The Aave Protocol is a leading non-custodial liquidity protocol allowing users to earn yield and borrow against their liquidity. Across markets and chains, the Aave Protocol is among the largest liquidity protocols, with $6B of assets supplied and $1.7B borrowed. The fees paid by borrowers are mostly shared among suppliers; with the Protocol only receiving 5-25% of the interest via the reserve factor.

The largest Aave market is V2 Ethereum with $1.5 billion of stablecoin liquidity supplied and over $840 million in stablecoins borrowed. Stablecoins (USDC, USDT, and DAI) account for three of the top four most borrowed assets on the market. This high demand for stablecoin borrowing pushes utilization of stablecoins to around 50%, with borrowers willing to pay ~1.5% APY or more on average over the previous 3 months. Based on the current borrows this represents $12M of annualized revenue. The average size of stablecoin borrows on the Aave V2 Ethereum market is over $300k, showing high institutional demand to borrow stable assets.