GHO Project Spotlight

Aave’s native stablecoin, GHO, is establishing itself as a notable contender in the yield-bearing space, a trend reflected in the metrics of the Stablewatch Yield Bearing Stablecoin dashboard.  Since its July 2023 launch, it has seen steady growth, reaching $335M total supply across more than 5,700 current holders. This has been in part due to the remarkable success of its issuer, the lending platform Aave, which has recently reached №38 when compared to US Banks by deposit size. However, GHO in itself is a masterful product implementation greatly complementing the broader Aave ecosystem. 

GHO Mechanics 

Borrowing of GHO is enabled by Facilitators, entities that can trustlessly mint and burn GHO tokens through differing strategies. The Aave DAO approves these facilitators as authorised actors within the protocol and assigns them a bucket with a specified GHO minting capacity, which can be altered by the governance. Currently, GHO operates with four authorised facilitators.  Two of these are foundational to the peg maintenance of GHO and its cross-chain functionality. The other two provide a direct utility for Aave users, allowing them to mint GHO. 

Aave V3 Market

The Aave V3 Market is a core product offering of the Aave platform and serves as the primary source of GHO supply. Users of Aave mint GHO by supplying approved assets (e.g. WETH, wstETH, wBTC) as collateral and borrowing GHO against them. Unlike typical borrowable assets, GHO is created on demand rather than coming from a liquidity pool: the Facilitator cap and collateralization requirements define the limits to which GHO can be minted, as presented with the equation below: 

availableFacilitatorCap = ghoReserveData.aaveFacilitatorButcketMaxCapacity - ghoReserveData.aaveFacilitatorBucketLevel

The current Aave V3 Market Facilitator cap is set to $180m, with $161m of that having been borrowed. However, this does not include GHO that is placed within the savings or Umbrella staking module. This brings the total supply of GHO minted via Aave V3 to $335M.

When a borrower repays a GHO loan, the repaid GHO is burned and the collateral is released, to keep the system fully collateralized. The borrow rate is determined by the GHO Stewards as part of the Aave DAO, and is currently set at 5.34%. All interest rate payments accrued through GHO are paid into the Aave DAO treasury, specifically into the Collector Contract Wallet. This makes GHO a significant revenue driver for Aave, collecting $14.5M in revenue to date. The majority of these earnings stem from its core GHO issuance, with additional revenue streams such as GSM USDC / USDT Stata Yield, Prime V3 GHO Reserve Earnings and GSM USDC / USDT Swap Fees. 

Just as any other collateralised address in the Aave market, GHO borrowers are eligible for liquidations under the same conditions. A user’s position faces liquidation risk if its health factor drops below one. This occurs when the value of their borrowed assets surpasses the weighted liquidation threshold of their collateral, which is the maximum percentage of a collateral’s value that can be borrowed against (currently 83% for WETH and 78% for wBTC). Once a position becomes eligible for liquidation, any address can make the liquidation call to repay up to 100% of the GHO borrow position in exchange for an equivalent USD valuation of the collateral asset in addition to a liquidation bonus.

Right now, there are almost 5,300 unique minters of GHO through the Aave V3 Market Facilitator. Total mint volume exceeds $938M which spans 18,815 separate mints.

Flash Mint 

Flash minting is the secondary method by which users of Aave may mint GHO. This is a specialised mechanism for the GHO token within the Aave protocol to enable flash loan-like functionality. It adheres to the ERC3156 standard, hence allows users to temporarily mint and access GHO liquidity from the FlashMinter Facilitator in a single transaction. Flash Mint enables actors to engage in key activities such as arbitrage and liquidations that administer a healthy DeFi ecosystem.

Flash minting is conducted through the following steps:

1. Your contract calls the FlashMinter Facilitator, requesting to FlashMint a certain amount of GHO using flashLoan().
2. If the requested amount is lower or equal to the Facilitator's capacity, the FlashMinter Facilitator mints and transfers the GHO amount to your contract, then calls onFlashLoan() on the receiver contract.
3. Your contract, now holding the FlashMinted amount, executes any arbitrary operation in its code.
   • You approve the FlashMinter Facilitator for FlashMinted amount + fee. If you are an authorized flashborrower by the Aave DAO, your fee is 0.
   • You return the keccak hash of ERC3156FlashBorrower.onFlashLoan so the FlashMinter Facilitator ensures the receiver is ERC3156 compliant.
   • If any of these conditions are not met or the amount owing is not available (due to lack of balance or approval), then the transaction is reverted.
4. All of the above happens in 1 transaction (hence in a single block).

Flashminting GHO on Aave has attained significant traction with total volume of GHO exceeding $133M with almost 3000 uses of the flash mint facility.  

Expansion

Aave has plans to expand the set of current facilitators, with planned iterations spanning collateralised delta neutral positions, an undercollateralised credit score implementation, algorithmic positions and permissioned RWA backed positions. The last of which, named Horizon, is in active development.

Horizon would provide support for whitelisted RWA. These could then be used to access permissionless stablecoin liquidity through the Horizon Facilitator, enabling GHO minting with RWA collateral. Compliance with issuer requirements is a core part of the model, hence allowing the issuer to enforce transfer restrictions at the token level in order to maintain complete control. This will include a permissioned liquidation workflow, where only the whitelisted entities can participate in both liquidations and the RWA redemption.

GHO Yield Bearing Products

There are currently two ways to earn yield on your minted GHO balance: minting savings GHO (sGHO) with GHO and earning the associated Aave Savings Rate, or staking your GHO in the Aave Umbrella risk management system.

Umbrella 

Aave Umbrella is a modular onchain risk management system that automates bad debt coverage for Aave v3 pools. It leverages Aave native assets to create an insurance layer for Aave lending. The current assets eligible for this system are aUSDC, aUSDT, aWETH and GHO. These aTokens inhabits separate pools and covers the lending position of each underlying asset (eg. GHO covering outstanding borrower GHO). The key advantage of this structure is its capital efficiency, since aTokens or GHO represent a liability which can be burned, thereby alleviating any deficit in the underlying lending pool and hence not requiring any asset sales. The current coverage totals $326.9M with GHO constituting  $12.6M of that. 

The risk that stakers in the Umbrella Module take on, is that if the underlying lending pool accrues bad debt, then the staked Umbrella pool position will be slashed to make up the deficit created by the bad debt. Since its launch over 5 years ago, Aave has accumulated just $2.25M of bad debt, with the most notable incident occurring in November 2022, when a short-lived CRV attack led to $1.6M in bad debt, later reduced to $400k after price recovery. In February 2025 Aave processed over $210M in liquidations, with zero new debt accruing  during a stress test. 

Umbrella stakers are rewarded for their risk through a combination of the underlying aToken yield and additional Safety Incentives. However, since GHO lacks an underlying yield, its stakers are compensated only with the Safety Incentives. These rewards are paid in governance-configured tokens like AAVE, GHO, or USDC. However, unlike aToken yield which accrues passively, GHO staking rewards must be claimed proactively. 

The Safety Incentive rate is calculated through a mathematically modeled S-shaped Emission Curve that targets the optimal staking levels. The system sets a target rate where the rewards paid out are optimal. When staked GHO is below the target rate, the system aggressively increases the rewards rate, while when the total supplied exceeds the target, the rewards rate tapers off.

The graph below juxtaposes the Umbrella emissions curve with the protocol APY.

The 7 day yield for GHO in the Umbrella module is at 10.13% APY, with the 30 day yield trailing at 9.46% APY. This places it greatly above the Stablewatch YBS average, crypto backed average and the treasury benchmark. However, it is important to note that since any GHO position has an inherent borrow cost (currently set to 5.34%), the real 7 day yield of the Umbrella module is 4.79%.

The GHO Umbrella module has a total yield paid out (YPO) of $202.91K with the daily YPO staying around the $3K mark.

sGHO

Savings GHO is the second yield bearing version of the GHO stablecoin, currently sitting at a TVL of $162M, outweighing even the supply of the regular GHO. It can be minted by depositing GHO into the sGHO contract, enabling users to earn the Aave Savings Rate. sGHO distributes yield from the revenue generated by the Aave Protocol and is intended as the lowest risk yield vehicle in the Aave product suite. This is achieved through GHO locked in the sGHO contract not being deployed to generate yield. This ensures liquidity is always available for users to withdraw and they are not exposed to any protocol risk.

With the creation of the sGHO, the Aave DAO has also instituted a new GHO Facilitator controlled by the GHO Stewards which allows users to mint GHO and deploy into sGHO in a streamlined manner. There are no fees associated with redemption of GHO for sGHO, reducing friction for users. 

Yield on sGHO is generated through the Aave Savings Rate. This can be calculated through the following formula:Aave Savings Rate = Amp x Index Rate + Premium

Index Rate = Representative of market conditions

Amp = Amplification Factor

Premium = Nominal Amount

This linear function provides sufficient flexibility to the DAO to manage the interest rate. The primary goal is to carefully calibrate the difference between the GHO Borrow Rate and the Aave Savings Rate. This spread must be attractive enough to encourage users to save GHO, yet narrow enough to prevent significant arbitrage opportunities between borrowing and saving. 

To illustrate, the current Aave Savings Rate is 9.13%, while the GHO borrow cost is 5.34%. This results in a net real yield of 3.79% for sGHO holders. 

The aim of the Aave Savings Rate is to bootstrap GHO adoption, this is enabled by the fortunate financial position of the Aave DAO. Currently the Aave treasury is at $252m as such it is able to pursue an aggressive campaign like sGHO. 

USD Peg

As a fiat denominated stablecoin, GHO is pegged to the value of the US dollar. The peg is maintained through two mechanisms: 

GHO Stability Module

The first of which is the GHO Stability Module, this is a contract that enables the conversion of GHO for governance approved tokens, currently USDC and USDT. This is underpinned by a Price Strategy framework which allows for adjustments in response to real-time market data or predetermined conditions. Exogenous tokens (non Aave tokens) are controlled through an exposure cap, oracle-based conversion freezes triggered by the Aave DAO, and a last resort liquidation module to protect the peg.

Arbitrage

Additionally, the GHO peg is maintained through the ability to arbitrage due to GHO always being redeemable for a dollar of collateral. This can be illustrated through two related examples.

1. If GHO price is above the peg ($1) in the market, users can mint 1 GHO for $1 worth of debt, and sell their GHO for more than $1. The minter can later repay their debt at $1 while keeping the difference. This increases the supply of GHO while decreasing the price of GHO.
2. If the GHO price is below peg ($1) in the market, minters can acquire 1 GHO on the market for less than $1, and pay off $1 worth of debt. This action shrinks the supply of GHO while increasing the asset price.

Ecosystem

Even though all GHO tokens originate from the Ethereum mainnet, GHO has been made available on Arbitrum, Base, Avalanche, Gnosis and Lens (soon to be launched on Plasma). This is done using the Chainlink CCIP protocol which has been approved by the Aave DAO to provide bridging services. In the case of bridging from Ethereum: GHO is locked on Ethereum in the GHOCCIPTokenPoolEthereum and then minted on the intended chain. Inversely, GHO is burned on the chain the GHO is being bridged from, and then unlocked on the Ethereum side. 

Aave has made significant inroads to facilitate sufficient liquidity for GHO to become a widely accepted medium of exchange in the DeFi ecosystem. Currently 41.4M GHO sits in  liquidity pools,allowing for 3.9M in swap size with just  1% of price impact. 

Major GHO liquidity pools are detailed below.

The distribution of GHO liquidity among DEXs is shown below:

Several key integrations are expanding GHO’s utility and cementing its role within the DeFi ecosystem. A prime example is Pendle, a yield-trading protocol that allows users to tokenize and trade the yield from sGHO. This mechanism enables participants to lock in a fixed return, while others can speculate on the direction of the variable rate. GHO’s integration into core lending markets provides immediate utility. On the Fluid protocol, for instance, users can currently lend their GHO to earn an attractive yield of 11.85% with a total TVL of 78m GHO on Ethereum.

 Furthermore, GHO has notably secured a listing on the exchange Bitget hence expanding access to this decentralised stablecoin to a whole new cohort of users. 

Governance

Under the Aave DAO there are two governance bodies that lead the GHO parameter decision making. These are:

GHO Liquidity Committee

The GHO Liquidity Committee (GLC) was created in October 2023 to focus solely on the liquidity of the GHO stablecoin. The ALC's main responsibilities regarding GHO include:

• Providing analytics and modelling of the liquidity strategy
• Liaising with teams that support the protocols hosting GHO liquidity
• Leading and coordinating the committee's weekly activities
• Providing critical feedback and helping refine the strategy
• Verifying and signing transactions

GHO Stewards

GHO Stewards is an additional entity created in April 2024 to more flexibly manage GHO market parameters, enabling GHO to be scaled per prevailing market conditions.

The GHO Stewards determine if and how much to adjust the following, subject to pre-defined and Governance accepted thresholds:

• GHO Borrow Cap
• GHO Borrow Rate
• GSM Exposure Cap
• GSM Bucket Capacity
• GSM Price Strategy
• GSM Fee Strategy
• GSM Price Range (Freeze, Unfreeze)