Aave raises GHO borrowing rates to address declining reserves

Aave is increasing borrowing rates for its GHO stablecoin on the Ethereum network to address declining reserves in its Stability Modules. The GHO Risk Council and stewards have moved to raise the core borrowing rate on the Ethereum Core market from 4.25% to approximately 4.50% or 5%, depending on specific market reports.

This adjustment aims to align borrowing costs with the Aave Savings Rate, which is set at 4.50%. By closing this gap, the protocol seeks to eliminate the incentive for users to borrow GHO at a lower rate simply to deposit it into sGHO savings products for a higher yield. Additionally, the base rate on the Ethereum Prime market is increasing from 2.75% to 3.00%.

The rate hikes come as the USDC conversion module within the GHO Stability Modules has been nearly depleted, while the USDT module holds approximately 22.5 million USDT. Higher borrowing costs are intended to encourage borrowers to repay GHO, which helps replenish reserves when repayments are made through the Stability Modules.