Aave raised the borrowing rate for GHO to 4.5% on its Ethereum Core market, matching the stablecoin's savings rate as of early October. The increase from the previous 4.25% rate was implemented between October 3 and October 4.
The rate adjustment addresses a previously stated gap where borrowers could acquire GHO at 4.25% while savers earned 4.5% through the sGHO savings token, requiring the protocol to fund the 25-basis-point difference. The higher borrowing rate eliminates this spread at the unchanged savings rate.
Aave's primary goal is to replenish depleted USDC reserves in the GHO Stability Module (GSM), which allows GHO holders to convert their tokens into stablecoins. However, the effectiveness of the rate increase depends on how borrowers obtain the GHO needed for repayment.
Borrowers can acquire GHO through two routes: purchasing on the secondary market or exchanging stablecoins through a GSM. Only repayments sourced through the GSM modules—where borrowers deposit USDC or USDT—will directly replenish reserves available for future conversions. Secondary market purchases support GHO's price but do not add stablecoin inventory to the modules.
Outstanding GHO debt on Core fell modestly from 116 million to 115.8 million between October 2 and October 5, but this decline does not confirm whether stablecoins are entering the reserves, as repayment can occur without stablecoins flowing into the modules.
Aave is also pursuing institutional funding through a proposed $25 million GHO facilitator. That arrangement would prioritize matched sGHO inflows first, then secondary-market liquidity, then GSM reserves. According to analysis, the funding route must persist for the loan's full duration to effectively address liquidity pressure.
Success requires stablecoin inventory to arrive and remain available for conversion, accounting for redemption fees, pool liquidity, and cross-chain access constraints where applicable.
