Aave's GHO Risk Council raised the GHO stablecoin's borrowing rate on Ethereum Core to 4.50% from 4.25% on Oct. 3, in a bid to rebuild reserves used to convert GHO into USDC and USDT. The executed transaction, recorded at 5:37 p.m. ET on Ethereum, also lifted Ethereum Prime's base rate to 3% from 2.75%.

The council acted through the markets' GhoAaveSteward contracts under its delegated mandate, implementing changes that Aave DAO service provider TokenLogic outlined in an Oct. 2 governance notice. The decision responds to depleted USDC reserves in the GHO Stability Module (GSM) and declining redemption reserves, according to TokenLogic's notice.

Why did the council move now?

The Core increase closes a 25-basis-point arbitrage gap with the savings rate. TokenLogic reported a 4.50% rate on sGHO, the GHO savings product, meaning borrowers could previously pay 4.25% to borrow GHO and deposit it into sGHO at 4.50%, with the DAO funding the difference. That imbalance had existed since sGHO was proposed: the protocol needed to attract savings deposits without over-subsidizing borrowers who farmed the spread.

The higher borrowing cost applies to outstanding variable-rate debt, not only new loans. Core's new rate is flat across utilization levels. Prime's rate varies with utilization — the share of supplied GHO already borrowed — and rose to 4.25% from 4% at its 92% target utilization level. Its utilization target and slope parameters remain unchanged.

On-chain data underscores the scale of the market affected. Aavescan displayed 114.7 million GHO of Core borrowing on Oct. 5. Prime showed a 4.17% borrow APR and a 3.24% supply APR at 86.35% utilization, with 54.4 million GHO supplied and 47 million borrowed, leaving roughly 7.4 million GHO unborrowed. That unborrowed balance serves as liquidity for GHO withdrawals — not inventory for conversion into USDC or USDT. Aave's withdrawal rules limit suppliers to available, unborrowed assets, and collateral requirements can further constrain individual withdrawals.

How thin are the conversion reserves?

The numbers are stark. The Ethereum USDC module still held only a few cents' worth of wrapped Aave USDC when read on Oct. 5, according to Etherscan. The USDT module held roughly $22.5 million of wrapped Aave USDT. Access to the underlying tokens also depends on lending-pool liquidity.

A higher borrow rate can encourage repayment, but it does not automatically refill those modules. TokenLogic explained the mechanics: borrowers who buy GHO on the secondary market can support its price, while borrowers who exchange USDC or USDT for GHO through a GSM directly replenish that module's stablecoin reserves. The rate hike is therefore an indirect lever — its effect on module reserves depends on which repayment route borrowers choose.

What does this mean for sGHO holders?

For savers, exiting involves two separate steps. Aave's sGHO documentation states that shares redeem into GHO without a cooldown. But converting that GHO into USDC or USDT still requires available conversion liquidity — precisely the resource now running low. sGHO holders can exit their savings position at any time yet may find the second leg of the exit constrained if modules stay depleted.

The operational picture puts pressure on how quickly repayments flow back through the GSM. If borrowers repay by swapping stablecoins for GHO via the modules, USDC and USDT reserves rebuild and redemption capacity recovers. If they instead buy GHO on secondary markets, the peg gets support while the modules stay thin.

The council's delegated mandate allows further steward-level adjustments without a full DAO vote, so additional rate changes could follow if redemption reserves do not recover in the coming weeks.