Aave's GHO Stablecoin Nears Elusive Dollar Peg

A "benevolent temporary dictator" is helping the not-so-stablecoin get on track.

AccessTimeIconNov 28, 2023 at 10:42 p.m. UTC
Updated Jan 26, 2024 at 3:13 p.m. UTC
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Sometimes it takes a dictator to get things done in decentralized finance. At least, that seems to be the case for Aave's stablecoin GHO.

The asset, which has been valued at less than $1.00 for nearly all of its life, gained ground this week and rallied to $0.985 for the first time since August. Its volatile gains aren't doing anything to fix GHO's reputation as a not-so-stablecoin, but they do set the token close to the levels one might expect from an asset that's supposed to be worth a dollar – not $0.96.

The higher price price matches the target set by the hands-on DeFi engineer who insiders have called GHO's "benevolent temporary dictator," TokenBrice. This month the pseudonymous Frenchman took over the liquidity committee Aave tasked with restoring GHO's dollar peg. He then embarked on an "ambitious gamble" to at least get GHO halfway there by Nov. 30.

Getting GHO on peg is no easy task because the stablecoin doesn't work like others do. It lacks a redemption mechanism that usually ensures these assets maintain a lower bound. And the interest rate is controlled by Aave governance, another possible negative in borrowers' eyes.

TokenBrice's strategy focused on incentivizing buying support for GHO in a very targeted manner. This played out most critically on the DeFi protocol Maverick, an Automated Market Maker that offers more levers than other AMMs for controlling the liquidity of its pools.

"We are using, for the first f------ time ever in the history of Defi, liquidity shaping in an opinionated manner," TokenBrice said in an interview with CoinDesk. (He's also an advisor to Maverick).

"We don't just pay for liquidity and incentives somewhere, we pay for a very specific kind of liquidity that are biased toward the buying side, and it helps us create price support for buying pressure for GHO, and progressively push it upward."

In a Nov. 23 committee report, TokenBrice said Maverick's so-called Boosted Pools had decisive advantages for engineering liquidity compared to better-known DeFi trading stalwarts, like Uniswap.

"Far from being a panacea, the new AMM stands out as a solution to help stablecoins return to peg," TokenBrice wrote of Maverick in the report.

The Maverick solution has certainly worked for GHO, said Marc Zeller, a vocal member of the Aave community who leads the Aave Chan Initiative. He said there may be some conflicts of interests in TokenBrice implementing and singing the praises of a project he advised.

The GHO repeg "is a great ad for Maverick," Zeller said in an interview. "But let's say that from my & Aave DAO's point of view, that's a win win." He compared the situation to a "double edged sword: a failure would not have been great for Maverick."

Zeller said his ACI also had a hand in organizing the repeg. "We coordinated governance, increases to borrow rate & DAO deals."

There's more to come in GHO's road to $1, he said. For starters some Balancer pools have an excess of GHO token, and that needs to be addressed. And the token's total issuance has been capped at 35 million for months, limiting its ability to grow.

"Once we reach a critical mass of sane liquidity around peg, we will propose to the DAO a "Stop and GHO" approach to gradually increase the mint Cap of GHO allowing more assets in circulation and a virtuous circle of liquidity," Zeller said.

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Danny Nelson

Danny is CoinDesk's Managing Editor for Data & Tokens. He owns BTC, ETH and SOL.


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