Aave | Bluechip

GHO is a new USD-pegged stablecoin launched in July 2023 by Aave, a leading money-market protocol on Ethereum, and is fully governed by the Aave DAO.
It is a CDP-style stablecoin that can be minted (borrowed) against collateral supplied into the Aave app.
Since its launch, GHO has been consistently trading around $0.97-0.985. A reclaim of GHO’s peg seems unlikely in the short term due to: (i) lack of strong stability mechanisms to enforce a $1 peg (ii) a low cost of borrowing GHO that incentivizes supply increases and (iii) anticipated sell pressure on GHO arising from a leveraged-yield strategy enabled by the onboarding of sDAI as collateral on Aave v3.
While GHO has low Management, Decentralization and Governance risks, it does not meet the minimum standard for Stability. GHO holders are exposed to significant price and liquidity risks. Due to low borrowing rates and no reserve redemption mechanism, GHO’s price is more likely to drop further than increase.
GHO, in its current form, is unsafe. We caution users against holding GHO.

Despite our rating, we believe GHO already has many key ingredients in place to become a safe, decentralized stablecoin, provided that it implements stability-enhancing changes to its design.

GHO's rating can be improved to a B+/B by:

enabling redemption of GHO for collateral or
enabling GHO as a collateral asset with high LTV.

The Stability factor is evaluated on the following:

Reserves Management - Quality, quantity, storage and segregation of reserve assets
Market Feedback - Indicators of market's confidence in a stablecoin derived from price and trade data
Mechanism - Stabilization methods that protect the stablecoin

The Management factor is evaluated on the following:

Restrictions - What deterrents exist to prevent key personnel of stablecoin projects from unethical and illegal behavior?
Negative Track Record - Have key personnel been involved in scams, frauds or other illegal activities?

This factor aims to assess risks arising from technical implementations – i.e, smart contract code and oracles. It is currently not assessed, but we plan for it to be evaluated in the future.

The Decentralization factor is evaluated on the following:

Platform Censorship Risk
Custodian Risk
Type of Collateral
Diversified Voting Power
User Censorship Risk

The Governance factor for on-chain stablecoins is evaluated on the following:

Voting Systems - Does the governance function have binding votes and automated on-chain execution of proposal outcomes?
Anti-Governance Attack Measures - Are there appropriate preventive and reactive measures to counter governance attacks?

This factor seeks to incorporate external feedback mechanisms such as market and social sentiment into our internal ratings. It is currently not assessed, but we plan for it to be evaluated in the future.