The Defiant

“Benevolent Dictator” Succeeds in Bringing Aave’s Stablecoin GHO Near Parity With USD

The Liquidity Committee had a target of $0.985 by November 30th, topping it and reaching $0.99 yesterday.

By: Pedro Solimano Loading...

An image of a coin with the Aave ghost.

Aave’s recently launched stablecoin GHO nearly hit parity with the US Dollar yesterday, as the project’s DAO continues its plan to “gently nudge” it towards $1–a peg it has not been able to reach since July, when the token first appeared.

Yesterday’s almost re-peg is the result of an effort by Aave’s Liquidity Committee, led by its member TokenBrice, considered the committee’s “benevolent dictator.” Succeeding with a couple of days to spare, the group had established a price target of $0.985 by November 30th.

GHO is a stablecoin native to the Aave protocol, allowing users to mint it using a wide range of collateral. It has never been 1:1, and according to dexscreener, currently changes hands at $0.982. Jumping ahead of the news yesterday, the network’s native token, Aave, has since dropped -1% in the past 24 hours, as per Coingecko, trading today at $97.11.

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GHO/USD Price

According to Marc Zeller, founder of the Aave Chain Initiative, getting closer to the $1 dollar mark, and surpassing their target ahead of time, is the result of “synergistic simultaneous efforts.”

Zeller told The Defiant that five factors fueled GHO’s rise.

He explained that the committee set a limit to the bucket size of $35 million with which facilitators can mint new GHO and increased the GHO borrow rate in line with average rates among other stablecoins.

He added that they’ve incentivized “buy wall” liquidity on Maverick, an automated market maker that allows for highly customizable liquidity pools, and created StkGHO to “create a liquidity sink and diversify the protection” of the asset protocol.

Lastly, Aave’s Liquidity Committee “synced” with other DAOs to diversify their stablecoin holdings, creating significant buying pressure for GHO on secondary markets.

Sub $1 Dollar GHO

Since the interest rate for the stablecoin is determined by governance, that lack of flexibility has meant there isn’t a mechanism to adjust the rate when market conditions vary.

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This has led to GHO’s borrowing rate to remain below that of some of its competitors, such as DAI or USDC.

Another contributing factor for GHo to remain sub $1, has been the lack of attractive yield opportunities for GHO holders–although the Liquidity Committee’s plan is to change that. Until now, alternative stablecoin farms such as MakerDAO’s DAI Saving Rate have been of more interest for investors.

What’s Next for GHO

Hitting its $0.985 target doesn’t mean the mission is complete and the committee is in the clear.

“To be honest, it’s half the journey,” Zeller said, pointing out that now the team has to solidify liquidity at the peg with “strong incentives.” He’s referring to the double digit yield options currently available on Maverick Protocol, which currently range from 34 – 45%. These should only last a couple of months, however, with Zeller telling The Defiant that there’s “no free lunch and they ain’t” Terra Luna.

Adding to these yield rates, the GHO Liquidity Committee (GLC) will also look to rebalance the Balancer Pools that are currently in excess of GHO, along with launching aCRVUSD/GHO and use the CRV DAO to incentivize liquidity around the peg on Curve.

For Zeller, once the protocol reaches a “critical mass of sane liquidity” around the peg, the team will propose the DAO a “Stop and GHO” approach to gradually increase the supply of the stablecoin. Until then, he concluded, “it’s all hands on deck.”

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