What is GHO, Aave's stablecoin?

GHO (pronounced "go") is a stablecoin created by the Aave community and designed to track the US dollar. It launched on Ethereum in 2023. Unlike most stablecoins, there is no company holding dollars in a bank behind it. GHO exists only because Aave users borrowed it into existence.

How GHO is created

With an asset like USDC on Aave, suppliers deposit tokens and borrowers take them out. GHO on Ethereum works differently: nobody needs to supply it first.

1. A user supplies collateral to Aave, such as ETH or another accepted asset.
2. The user borrows GHO. At that moment the protocol mints brand new GHO and sends it to them.
3. When the user repays, the GHO is burned, and the interest goes to the Aave treasury.

Every GHO in circulation is therefore backed by collateral worth more than the GHO itself. The loan follows the same rules as any other Aave loan, including max LTV, liquidation threshold and health factor. If the collateral falls too far, the position is liquidated and the GHO debt is repaid.

Facilitators and mint limits

GHO can only be minted by contracts that Aave governance has approved, called facilitators. Each facilitator has a bucket: a hard limit on how much GHO it may have outstanding. The Aave V3 Ethereum market was among the first facilitators. Governance has since approved others, including modules that swap GHO against other stablecoins to help hold the price near one dollar.

Raising a bucket limit takes a governance decision, so GHO supply grows in controlled steps. More background is in the Aave documentation.

How the borrow rate is set

For ordinary assets the borrow rate follows utilization, as explained in how Aave interest rates work. That cannot work for GHO on Ethereum, because there is no supplied pool to be utilized. Instead:

• The GHO borrow rate is set by Aave governance, directly or through stewards it appoints.
• It stays flat between decisions, then moves in a step when a change is approved.
• Governance uses the rate as a tool for the peg. Raising it makes borrowing GHO less attractive, which reduces supply and supports the price. Lowering it does the opposite.

Interest paid on GHO goes to the Aave treasury, not to suppliers, since there are none.

On some other networks GHO arrives over a bridge from Ethereum and may be listed like a regular asset that can be both supplied and borrowed. The live picture across markets is on our GHO page.

sGHO: savings for GHO holders

sGHO is a savings vault for people who hold GHO. You deposit GHO and receive sGHO shares, and the vault is designed so that each share can be redeemed for more GHO over time as yield is added. The target rate is set by Aave governance, and the vault has a deposit cap. We show the current figures on the GHO page and do not quote them here, because they change.

Risks to understand

• The peg is a target, not a guarantee. GHO has traded away from one dollar at times.
• Borrowers can be liquidated like any other Aave borrower if their collateral falls in value.
• The rate can change by vote at any time, in either direction.
• Smart contract and governance risk apply, as with everything on-chain.

To compare GHO with other dollar assets on Aave, see the stablecoins page.