Maximizing yield with Aave V3 and GHO
Aave V3 enables GHO minting through collateral like WETH or USDC while utilizing risk-reducing features like e-mode. The Risk Council recently adjusted the GHO Core borrowing rate to 4.50% to manage conversion reserves and maintain stability within the protocol.
Aave V3 provides the infrastructure to mint GHO by depositing collateral such as WETH, WBTC, or USDC. The protocol uses over-collateralization to ensure safety, requiring borrowers to pledge more value than they borrow. Users earn interest through aTokens, which track their claim on deposited assets. The balance of these tokens increases automatically as interest accrues.
Efficient borrowing mechanics
The Aave V3 Ethereum market serves as the initial Facilitator for GHO. This market utilizes risk-reducing features like e-mode and isolation mode to manage stability. To mint GHO, you must supply collateral and then borrow against it. You should keep your health factor above 1.5 to avoid liquidation. If the collateral value drops and the health factor falls below 1, others can liquidate your position by paying back the debt and taking your collateral.
| Feature | Detail |
|---|---|
| GHO Peg | $1.00 via fixed oracle |
| Core Borrow Rate | 4.50% |
| sGHO Savings Rate | 4.50% |
| E-Mode Max LTV | Up to 98% |
The Risk Council raised the GHO Core borrowing rate to 4.50% on October 3 to help refill conversion reserves after USDC reserves in the Stability Module sat nearly empty. This move closed the 25-basis-point gap with the 4.50% savings rate paid on sGHO. While higher rates encourage repayment, they do not automatically refill the modules. Can users effectively manage liquidity if conversion reserves remain low?
Reward boosters and Merit updates
The Merit system rewards specific actions to drive DAO revenue. Borrowing GHO or wETH qualifies as an eligible action for rewards. The DAO also provides multipliers for certain behaviors.
| Behavior | Multiplier Description |
|---|---|
| Migrator | Incentive for moving positions to Aave |
| Diversity Supporter | Rewards for using minority LSTs |
| OG DAO Participant | Booster for early DAO voters or delegates |
| Staker | Bonus for staking AAVE or StkGHO |
Users receive a "Staker" bonus for staking AAVE or StkGHO. Those who held AAVE for at least 100 days in the past year qualify for the "Holdooor" booster. Governance participants get a boost for voting or delegating to a recognized platform. However, users of a non-aligned protocol face a -100% dilution effect, which removes them from the reward pool to favor aligned users. Diversifying your collateral helps, but will the dilution effect eventually shrink rewards for all borrowers?
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