Aave Explainer Series - The GHO Stablecoin
A comprehensive introduction to the GHO stablecoin and relevant risk factors
This article was prepared for the Aave DAO as part of an explainer series published by LlamaRisk, which has been appointed as an Aave risk service provider. It offers an in-depth view of the GHO stablecoin, including its collateral, liquidity mechanisms, and integrations with other DeFi protocols. This series aims to provide the general public with an overview of Aave's current state, ultimately leading to the creation of a risk framework for asset onboarding and parameterization.
Useful links
Website: app.aave.com
Documentation: GHO whitepaper | GHO docs
Contracts: GHO token | stkGHO token
Dashboards: TokenLogic metrics | Chaos Labs dashboard
Summary
GHO is a decentralized, over-collateralized stablecoin native to the Aave V3 Protocol. It is minted by users on demand by supplying assets at a minimum collateral ratio. The top collateral types currently are wstETH, sDAI, WETH, and WBTC.
The total GHO supply is limited by a borrow cap set by Aave Governance, 85m as of June 11th, 2024. Governance also dictates its interest rate and sets incentive programs.
GHO can always be redeemed by borrowers through the Aave Protocol at a fixed value of $1, effectively paying back their debt and freeing up the collateral locked when they minted GHO. This fixed rate enables arbitrage opportunities with secondary markets, helping to maintain GHO's peg to the US dollar.
GHO holders can earn yield through staking into the Safety Staking Module, the Merit incentive program, and other DeFi protocols such as Gearbox, Aura, and fx Protocol. Over 65% of GHO supply is staked in the Safety Staking Module, an insurance fund protecting against shortfall events.
Unlike other borrowable assets on Aave, interest payments from GHO minters go directly to the Aave DAO treasury.
This is just a summary of our report. Our work is published in full on our brand-new website, www.llamarisk.com. Read the full report here.