Aave Proposes Savings Product Built on Its GHO Stablecoin

Aave, the largest lending platform in decentralized finance, is considering a proposal to create sGHO, a low-risk savings product built on its GHO stablecoin.

Aimed at helping GHO grow from a $200 million market capitalization to $300 million, sGHO would provide yield based on an Aave Savings Rate fed by revenue generated by the Aave protocol, according to an Aave governance proposal.

The move comes as other stablecoin protocols are issuing savings-based ERC20 tokens like sUSDS by Sky, formerly known as MakerDAO. This is the token the proposal considers closest to sGHO. “For sGHO to compete, given its relative size, a premium would be required to attract meaningful amounts of capital,” the proposal notes.

At $205 million, GHO is the 25th largest stablecoin, according to CoinGecko. By comparison, sUSDS is the 6th largest stablecoin, with a market cap of $3.3 billion.

Fortunately, with its strong financial position, Aave is in a position to pursue an “aggressive growth strategy” during a depressed yield market, said the proposal by Aave Chan Initiative. Aave Chan is a delegate platform focused on governance participation and creating Aave Improvement Proposals (AIP) for the Aave DAO.

“Launching sGHO with a premium to other similar savings products is expected to lead to significant growth,” the proposal said. At the same time, it will balance the yield profile to avoid overly encouraging arbitrage between the GHO Borrow Rate and Aave Savings Rate.

No Rehypothecation

The sGHO will be created by locking GHO tokens into a smart contract. Those GHO tokens will not be rehypothecated to limit risk. Rehypothecation is the financial practice of a broker or lender reusing a client's collateral for their own needs.

As a yield product, there will be no deposit or withdrawal fees associated with creating or exiting sGHO, as it would “reduce the appeal of the offering, placing sGHO at a disadvantage to similar offerings available in the market.”

The savings rate may fluctuate based on the amount of sGHO minted by users, as the revenue derived by GHO will be spread across a larger base, meaning either the rate will decrease or Aave will have to provide additional funding.