CoinClear

GHO (Aave)

6.0/10

Aave's native stablecoin — recovered from a rough launch with persistent depeg issues, now stabilizing but still proving itself.

Updated: February 16, 2026AI Model: claude-4-opusVersion 1

Overview

GHO is a decentralized, overcollateralized stablecoin minted natively within the Aave V3 protocol on Ethereum. Launched in July 2023, GHO allows Aave borrowers to mint GHO against their deposited collateral, with the interest payments flowing directly to the Aave DAO treasury rather than to liquidity providers. This design makes GHO a revenue-generating asset for AAVE token holders.

The launch was technically successful but commercially problematic. GHO experienced a persistent depeg for months after launch, trading between $0.95-$0.98 through late 2023. The depeg resulted from a combination of factors: aggressive initial minting, insufficient liquidity incentives, lack of a direct redemption mechanism, and an unfavorable rate environment where GHO's borrow rate was lower than competing stablecoin yields. Users minted GHO to sell for higher-yielding alternatives, creating sustained selling pressure without adequate demand-side mechanisms.

Aave governance responded with multiple corrective measures: raising GHO borrow rates, introducing the GHO Stability Module (GSM) for direct USDC/USDT swaps, increasing stkAAVE discount rates, and deploying Curve and Balancer liquidity incentives. By early 2024, GHO had largely recovered its peg. As of early 2026, GHO's supply has grown to approximately $500M-$1B with improved peg stability.

Peg Stability

Launch Period Issues

GHO's first six months were defined by its inability to maintain the $1.00 peg. From August to December 2023, GHO consistently traded at $0.95-$0.98. The root cause was a design flaw: GHO's initial borrow rate (1.5-2%) was significantly below market rates for other stablecoins, creating a carry trade where users minted GHO and sold it for higher-yielding alternatives. Without a hard redemption mechanism (unlike DAI's PSM), there was no direct arbitrage to restore the peg.

Recovery Mechanisms

The Aave DAO implemented several fixes: the GHO borrow rate was raised to be competitive (above 5%), the GHO Stability Module (GSM) was deployed to enable direct 1:1 swaps with USDC and USDT (similar to Maker's PSM), stkAAVE holders received discounted borrow rates incentivizing GHO holding, and significant Curve/Balancer liquidity incentives deepened trading pools. These measures cumulatively restored and maintained the peg.

Current Stability

Since mid-2024, GHO has maintained a tighter peg, typically within $0.998-$1.002. The GSM provides a hard floor mechanism similar to DAI's PSM, and the higher borrow rate has eliminated the carry trade incentive. However, the extended depeg period at launch means GHO's peg credibility still trails established stablecoins.

Collateralization

Reserve Composition

GHO is backed by the collateral deposited in Aave V3 by borrowers. This includes ETH, WBTC, wstETH, USDC, and other Aave-accepted assets. All collateral is overcollateralized according to Aave's risk parameters, with liquidation thresholds ranging from 80-86% loan-to-value. The GSM also holds USDC and USDT reserves for peg stability operations.

Transparency

Collateral backing is fully on-chain and verifiable in real-time through Aave's smart contracts. Every GHO position, its collateral, and its health factor are publicly visible. The GSM reserves are similarly transparent. This level of transparency is a significant advantage over centralized stablecoins and even some decentralized alternatives with off-chain components.

Overcollateralization

Aave's liquidation parameters ensure GHO is always overcollateralized. Individual positions face liquidation when collateral ratios drop below thresholds. The effective system-wide collateralization ratio depends on the mix of collateral and utilization rates but generally exceeds 150%. Aave's proven liquidation infrastructure (battle-tested since 2020) provides confidence in the mechanism.

Security

Smart Contract Risk

GHO benefits from Aave V3's extensively audited codebase. Aave is one of the most audited protocols in DeFi, with reviews from OpenZeppelin, Trail of Bits, SigmaPrime, Certora (formal verification), and others. The GHO-specific contracts (facilitators, GSM) underwent dedicated audits. Aave V3 has secured $10B+ without a major exploit, providing strong security credentials.

Facilitator Model

GHO uses a "facilitator" model where approved entities can mint GHO. Currently, the primary facilitator is the Aave V3 pool itself, with the GSM as a secondary facilitator. The Aave DAO controls facilitator approval through governance, creating flexibility for future GHO minting avenues (e.g., RWA-backed facilitators). Each facilitator has a configurable minting cap to limit systemic risk.

Oracle Dependency

Like all overcollateralized stablecoins, GHO depends on accurate price oracles for liquidations. Aave uses Chainlink price feeds as its primary oracle source, benefiting from Chainlink's track record. Oracle manipulation or failure could impact liquidations, though Aave's oracle design includes fallbacks and circuit breakers.

Decentralization

Governance

GHO is governed by AAVE token holders through the Aave DAO. Governance controls all GHO parameters: borrow rates, facilitator caps, GSM parameters, and liquidity incentives. This provides more decentralized governance than centralized stablecoins. However, Aave governance exhibits the same concentration issues common to token-weighted DAOs — large holders and delegates dominate voting.

Censorship Resistance

GHO has no blacklist or freeze function in the token contract, making it freely transferable once minted. This is a meaningful advantage over USDT, USDC, and PYUSD. The GSM's USDC/USDT reserves are subject to those issuers' freeze capabilities, but GHO itself cannot be censored at the token level.

Protocol Independence

GHO is tightly coupled to Aave V3, meaning its fate depends on Aave's continued operation and security. While Aave is one of the most established DeFi protocols, this coupling means GHO cannot exist independently. A critical Aave vulnerability would directly impact GHO.

Adoption

Market Position

GHO's supply of approximately $500M-$1B places it as a mid-tier stablecoin. Growth has been steady post-peg-recovery, with the Aave ecosystem providing a natural user base. However, GHO remains significantly smaller than DAI, USDC, or USDT.

DeFi Integration

GHO is integrated into the Aave ecosystem natively and has expanded to Curve, Balancer, and other Ethereum DeFi protocols. The stablecoin benefits from being the default borrowable asset in Aave, driving organic demand from Aave's existing user base. Cross-protocol integrations are growing but still limited compared to established stablecoins.

Cross-Chain Expansion

GHO launched on Ethereum and has expanded to select L2s using Chainlink CCIP for cross-chain transfers. The cross-chain roadmap envisions GHO as a multichain stablecoin leveraging Aave's deployments across multiple networks, but current cross-chain presence is limited.

Risk Factors

  • Peg credibility deficit: The prolonged depeg at launch damaged GHO's reputation; users may lack confidence during future market stress.
  • Aave dependency: GHO is fully dependent on Aave V3's security and continued operation — a critical Aave exploit would directly impact GHO.
  • GSM dependency on centralized stablecoins: The GSM relies on USDC and USDT, creating indirect centralization dependencies.
  • Governance risk: Rate-setting and parameter changes through governance can be slow to respond to market conditions.
  • Competition: GHO competes with DAI, crvUSD, LUSD, and other decentralized stablecoins for a limited DeFi-native user base.
  • Facilitator expansion risk: Future facilitators could introduce new risk vectors if governance approves less battle-tested minting mechanisms.

Conclusion

GHO is a promising but still-maturing stablecoin that stumbled at launch due to mechanism design oversights. The persistent depeg through late 2023 was a valuable — and costly — lesson in stablecoin incentive design. The corrective measures (GSM, rate adjustments, liquidity incentives) have been effective, and GHO now maintains a stable peg with growing supply.

The Aave ecosystem provides a natural moat: GHO is the default stablecoin for Aave borrowers, and Aave's massive TVL provides a built-in user base. The revenue model — borrow interest flowing to the DAO treasury — aligns protocol and token holder incentives.

The 6.0 score reflects GHO's solid security foundation (Aave's audited infrastructure), reasonable decentralization (no blacklist, DAO governance), and adequate collateralization, weighed against the peg stability concerns from its troubled launch and limited adoption relative to competitors. GHO needs more time and stress-testing to prove it can maintain stability through a major market downturn.

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