GHO interest rates climb as reserves drop

The GHO Risk Council raised the core borrow rate for GHO on Ethereum to 5% because the Ethereum USDC conversion module sits nearly empty after GHO traded near $0.999 for much of September and early October 2026. This adjustment follows a TokenLogic proposal from October 2, 2026, that sought to align the borrow rate with the 4.50% Aave Savings Rate paid to sGHO holders. The previous 4.25% borrow rate allowed users to mint GHO and farm sGHO for a profit, but the new 5% rate closes this gap. The USDT GSM holds 22.5M USDT. Higher borrow costs incentivize users to repay loans, which refills the stability modules with stablecoins. When GHO trades below $1, traders buy it on the market and redeem it through a GSM for a full dollar of USDC or USDT. This is the third time in roughly three months that the rate dial has turned, following a rise from 3.75% to 4.25% in August 2026. The Risk Council carries out these changes by calling the updateGhoBorrowRate function on specific Aave contracts, and each adjustment stays within preset per-update limits. The Prime market also saw changes, as the base rate rose from 2.75% to 3.00% and the kink rate rose to 4.25%. Prime borrowers still keep a 25 basis point discount at optimal utilization.

V4 architecture and risk isolation

Aave V4 uses a Hub and Spoke design to manage risk without fragmenting liquidity across the protocol. In this model, all assets on a network reside in a Liquidity Hub rather than in individual, isolated pools. Spokes function as independent borrow markets that draw liquidity from the Hub as needed. Each Spoke maintains its own risk parameters, collateral lists, and rate curves. This separation ensures that a failure in one Spoke does not directly expose the assets in the Hub. V4 also includes Liquid eMode, which allows assets to be listed in multiple eModes. Risk Premiums also function in V4, where the protocol prices borrow rates based on the quality of the collateral used by a borrower. The Hub sets a base rate driven by supply and demand, while Spokes pay the Hub a premium proportional to risk.

The V4 architecture aims to support long-tail assets through specialized Spokes while protecting the main Liquidity Hub. In V3, listing a new asset meant exposing every depositor to that asset’s failure mode, which Isolation Mode mitigated by limiting how assets function as collateral. A user with collateral in a Polygon Spoke can mint GHO directly into the Polygon Hub, and this GHO is fungible with Ethereum-issued GHO via the CCIP-managed cross-chain supply.

Yield competition and market activity

Morpho vaults pay USDC yields between 5% and 12% because they use peer-to-peer matching to increase capital efficiency. Aave V3 yields for USDC sit lower, typically between 1.8% and 4.5%. Sky pays a 4.5% savings rate that relies on protocol revenue and US Treasury bills rather than borrower demand. Aave fee revenue for the last 30 days reached $83.3 million, which is about four times the revenue of Morpho. Aave rates on Ethereum mainnet can drop below 2% in low-demand periods. Any stablecoin rate below the 3.82% three-month Treasury bill yield asks users to take extra risk for less money.

Binance advertised up to 5.5% and later up to 7% on USDC, and up to 6% on USDT, between February and July 2026. Kraken and Coinbase both describe their stablecoin rewards as loyalty programs funded by their own budgets. Aave’s total value locked remains at $27.2 billion, while its cumulative lending exceeds $1 trillion. You, who already know the basics of liquidity concentration, must decide if the deep liquidity of Aave outweighs the higher interest rates found in Morpho vaults. Should users prioritize the safety of Aave’s long history or the efficiency of Morpho’s vaults?