GHO’s utilization on Aave stands at approximately 3 % as of mid-2025, indicating a significant imbalance between supply and demand for the stablecoin. This low utilization stems from a combination of factors: GHO’s fixed borrow rate of 3 % coupled with a zero percent supply rate discourages liquidity providers; incentive programs like stkGHO emissions have been insufficient to sustain long-term engagement; liquidity depth on decentralized exchanges is shallow, leading to slippage and peg instability as GHO often trades at ~$0.97 per dollar. Further, GHO faces stiff competition from established stablecoins (USDC, DAI) that offer higher net spreads and deeper liquidity. Overcollateralization requirements and manual governance adjustments add friction to borrowing, while low confidence in GHO’s peg reduces engagement from sophisticated borrowers. Addressing these issues—through dynamic rate modeling, supply APR sharing, expanded incentives, cross-chain liquidity, and governance reforms—could raise utilization toward Aave’s target bands, unlocking robust yield-farming and liquidity provision opportunities by late 2025.
Overview of GHO Stablecoin
GHO is Aave’s native, overcollateralized decentralized stablecoin, launched on Ethereum mainnet in July 2023 and governed by the Aave DAO. It maintains a 1:1 peg to the U.S. dollar by requiring borrowers to deposit approved crypto assets (ETH, AAVE, DAI, etc.) as collateral. Interest paid by borrowers accrues directly to the Aave DAO treasury, distinguishing GHO from traditional yield-sharing models where supply-side interest benefits liquidity providers.
Why Utilization Matters for Yield Farmers & Liquidity Providers
Utilization rate—the ratio of borrowed GHO to total GHO supply—dictates the net APR spread between borrowers and suppliers. With GHO’s current utilization at ~3 %, borrow rates remain fixed at 3 % while supply rates stay at 0 %, eliminating any direct yield for suppliers and compressing net spread opportunities for yield farmers compared to DAI and USDC (where supply APRs often reach 3 %–4 %). Yield-farm strategies hinge on maximizing spreads, so a zero supply rate disincentivizes capital deployment into GHO pools. Liquidity providers also require deep, liquid markets to enter and exit positions without high slippage; GHO’s thin liquidity on major DEXs (Balancer, Uniswap) fails to meet these needs.
Article Scope & Audience
This article is tailored to DeFi yield farmers and liquidity providers. It will cover GHO’s current on-chain metrics, historical utilization trends, root causes of low utilization, comparative analysis versus other stablecoins, implications for yield-farming and LP strategies, and propose actionable solutions and outlooks. By the end, readers should understand why GHO utilization remains low and how impending changes could unlock new opportunities.
Current State of GHO Utilization (≈ 3 %)
On-Chain Metrics Overview
As of June 2025, GHO’s circulating supply is approximately 238 million tokens, representing a market cap near $238 million. The Aave UI indicates total value locked (TVL) specific to GHO markets around $240 million, a small fraction of Aave’s overall TVL exceeding $30 billion. The borrow rate for GHO is set at a fixed 3 % APR by Aave governance, while the supply APR remains effectively 0 %—borrower interest does not pass to suppliers unless they opt into limited stkGHO incentive programs. Consequently, GHO’s utilization rate, defined as the ratio of borrowed tokens to total available supply, hovers around 3 %.
Historical Utilization Trends
GHO issuance saw rapid growth during late 2023 and early 2024, with utilization peaking near 10 % when stkGHO incentives were highest. However, by mid-2024, utilization began to decline as initial incentives waned and borrower demand slowed. Stake emissions for stkGHO were reduced in late 2024, causing suppliers and borrowers to pivot back to established stablecoins. In May 2025, Aave DAO reactivated stkGHO emissions for 180 days to encourage an uptick; utilization momentarily rose to ~5 % before receding to ~3 %. These levels remain far below Aave’s ideal utilization bands (50 %–90 %) for healthy market dynamics.
Factors Constraining GHO Utilization
Interest-Rate Dynamics & Incentive Misalignment
GHO’s borrow APR is fixed at 3 % and only adjustable via governance votes, whereas competitor stablecoins on Aave (DAI, USDC) use dynamic, utilization-based curves that adjust automatically to market conditions. This static model fails to incentivize either borrowing when demand is low or temper it when demand spikes, resulting in persistent underutilization.
Supply Rate = 0 % (No Direct Supplier Yield)
With 100 % of borrower interest directed to the Aave DAO treasury, GHO suppliers earn 0 % APR on their deposits unless they capture temporary stkGHO rewards. In contrast, supplying DAI or USDC yields ~3 %–4 % APR, making GHO unattractive to LPs.
stkGHO Incentive Program Insufficient
stkGHO emissions, re-enabled in May 2025, offer limited yields (e.g., 5 %–8 % APR in stkGHO tokens) but require users to stake and vest, creating liquidity lockups and uncertain returns. Once emissions taper, supply yields revert to zero, prompting suppliers to exit.
Liquidity Depth & Market Fragmentation
Major GHO liquidity resides on Balancer (approx. 33 % share) and Uniswap (approx. 12 %), yet overall TVL in GHO pools on these DEXs is under $15 million. Thin pools increase price slippage when swapping GHO against USDC/USDT, deterring arbitrageurs and borrowers seeking cost-efficient entry.
Cross-Chain Integration Lags
Although GHO has been bridged to Arbitrum, Gnosis Chain, Base, and other L2s using Chainlink CCIP, cross-chain transfer volumes remain low. This limited multi-chain adoption restricts GHO’s accessibility and hinders broader liquidity aggregation.
Supply Cap Restrictions
Certain GHO markets, such as Base, reached predefined supply caps, limiting new deposits despite significant borrowing demand at 24 % borrow cap utilization. Until governance raises these caps, potential supply growth remains blocked.
Price Peg & Market Confidence
Since its launch, GHO has frequently traded below its $1 peg (e.g., ~$0.97 in October 2023), indicating negative market sentiment and selling pressure. Peg deviations undermine confidence and discourage both suppliers and borrowers.
Over-Collateralization & CDP Model Concerns
GHO relies on a CDP mechanism that demands 100 %+ collateral deposited into Aave pools, but manual interest rate adjustments via governance slow responsiveness to market fluctuations. Delay in rate updates can widen the peg gap and raise liquidation risks.
Risk-Averse Borrowers
Institutional and large-scale borrowers often prefer DAI or USDC due to their longer track records, deeper integrations, and robust peg stability. Consequently, GHO struggles to attract high-volume borrowers, further suppressing utilization.
Competitive Pressure from Other Stablecoins
USDC and DAI hold collective market caps exceeding $100 billion, with deep liquidity across CEXs, DEXs, and CeFi rails. Borrowing USDC at ~4 % APR and supplying at ~3 % APR yields a positive net spread, while GHO’s 3 % borrow and 0 % supply offer no immediate yield to suppliers, making alternative assets more attractive.
Integrated Yield-Farming Ecosystems
DAI, USDC, and FRAX benefit from extensive gauge-based incentives on Curve, Convex, and other aggregators, boosting supplier yields to 8 %–12 % APR. This deep, multi-protocol incentive stack overshadows GHO’s limited Balancer gauge rewards.
Governance & Collateral Requirements
GHO’s LTV ratios (80 % for ETH, 70 % for wBTC, 50 % for others) are conservative compared to DAI’s (75 % ETH, 90 % wBTC). Higher collateral requirements tie up more capital, reducing GHO’s appeal to borrowers.
Manual Interest Rate Adjustments via Aave DAO
Aave governance sets GHO’s borrow rate through periodic votes. With low DAO participation (~5 % of AAVE staked), rate updates lag market conditions, exacerbating peg instability and utilization mismatches.
Safety Module & stkAAVE Discount Model
Borrowers staking AAVE in the Safety Module receive up to a 0.5 % discount on GHO borrow rate (e.g., 2.5 % vs 3 %). However, staking AAVE locks capital that yield farmers may prefer to deploy elsewhere for higher returns, limiting uptake of this discount mechanism.
Comparative Analysis: GHO vs. Other On-Chain Stablecoins
Borrow & Supply APR Comparison
GHO: Borrow APR 3 % (fixed); Supply APR 0 % (only via stkGHO). DAI: Borrow APR ~5 % (variable); Supply APR ~3 %–4 % (variable). USDC: Borrow APR ~4 % (variable); Supply APR ~2 %–3 % (variable). crvUSD: Borrow APR ~6 %–8 % (variable); Supply APR ~5 %–6 % via Curve. FRAX: Borrow APR ~7 %–10 % (variable); Supply APR ~6 %–8 % via Curve/Convex. GHO offers a gross spread of 3 %, but suppliers earn zero, while other stablecoins typically offer net spreads of 1 %–2 % with deeper incentive stacks.
Liquidity & Market Depth
GHO’s DEX liquidity on Balancer and Uniswap shows 24 hour volume ~ $3.3 million and total pool depth < $15 million, leading to slippage exceeding 0.5 % on moderate swaps. In contrast, DAI/USDC pools on Curve and Balancer command > $2 billion TVL each, with 24 hour volumes > $100 million and slippage < 0.02 %. Major centralized exchanges list GHO but with shallow order books: ~$500 000 depth per $0.01 move, while DAI and USDC show > $50 million depth for similar price steps. Aggregator platforms rarely include GHO in vault strategies due to low TVL, whereas DAI and USDC vaults manage > $500 million each.
Risk Profile & Governance
Risk assessments place GHO at a lower safety grade (Grade D) than DAI (Grade B) and USDC (Grade A). GHO’s peg relies on overcollateralization and governance-set rates; DAI uses a multi collateral “Maker” mechanism, and USDC is backed by custodial reserves. Aave DAO’s low voter turnout (~5 % of staked AAVE) limits timely decisions on rates and supply caps, whereas MakerDAO’s community exhibits higher participation leading to quicker risk adjustments.
Implications for DeFi Yield Farmers & Liquidity Providers
Yield-Farming Strategies Involving GHO
Borrow-to-Farm (Arbitrage Borrowing): Yield farmers may borrow GHO at 3 % APR, swap to USDC or DAI to earn ~4 %–5 % APR, netting ~1 %–2 % carry. However, swap slippage due to thin GHO liquidity can erode profits, and collateral liquidation risks loom if ETH or other collateral values drop >5 % before debt is repaid.
LP Mining (Balancer/Uniswap)
Providing GHO/USDC liquidity on Balancer or Uniswap earns trading fees (~0.1 %–0.3 %) plus sporadic gauge incentives. Yet, impermanent loss can be severe given GHO’s peg volatility and low trading volumes yield limited fee income—often < $100/week on a $100 000 position.
stkGHO Discount Play
By staking AAVE in the Safety Module, borrowers receive a 0.5 % discount on the GHO borrow rate (borrowing at 2.5 % instead of 3 %). They can then swap to higher-yield stablecoins. This strategy is limited by the need to lock AAVE (opportunity cost versus other yield farms) and a cap of 2 500 GHO minted per 25 AAVE staked (diminishing returns at scale).
Liquidity Provider Considerations
Risk–Reward Profile: GHO/USDC pools see ~$3 million/day in volume versus DAI/USDC pools at > $100 million/day, making GHO pools far less attractive. Impermanent loss for GHO pairs is high due to frequent peg deviations, and fee revenue cannot compensate. LPs often avoid GHO pools unless temporary gauge incentives exist.
Capital Efficiency
Compared to alternatives, deploying capital into GHO yields near-zero passive income absent incentives. LPs can attain similar or better returns by providing to DAI or USDC pools with lower risk profiles. Hedged positions (e.g., pairing GHO with ETH) expose LPs to ETH price swings and limited demand for GHO.
Regulatory & Counterparty Risks
While GHO’s decentralized issuance reduces central counterparty risk, smart contract vulnerabilities remain. Audits exist but GHO’s codebase has not been tested through prolonged high-stress events. Dealers who prefer fiat-backed stablecoins may view GHO as relatively unproven for treasury use.
Potential Solutions & Future Outlook
Introduce a Dynamic Utilization-Based Curve
Migrating from a fixed 3 % to a kinked utilization curve (e.g., 0 % APR below 10 % utilization, rising to 5 % at 50 % utilization, and steeper slopes above 80 %) would better align borrow and supply incentives with market demand. Automated adjustments can incentivize borrowing when supply is idle and discourage overborrowing at high utilization.
Partial Supply APR Share
Redirecting a portion (e.g., 10 %) of borrower interest back to suppliers could establish a baseline supply APR (e.g., 0.3 %–0.5 % when utilization < 10 %) to entice early liquidity. As utilization climbs, supplier APR can grow to 1 %–2 %, narrowing the gap versus competitor stablecoins.
Extended stkGHO Emissions & Deeper Gauge Integration
Extending stkGHO emissions beyond 180 days and integrating rewards into multiple protocol gauges (Balancer, Curve, Aura) would distribute incentives across DEX pools, increasing LP rewards and sustained liquidity. Graduated emissions—higher when utilization < 10 %, tapering as utilization rises—could balance supply growth with market health.
Liquidity Mining Grants / Foundation Support
Aave Foundation could allocate a tranche (e.g., $5 million in GHO) to seed liquidity in key pools, especially cross-chain venues (Arbitrum, Base, Gnosis). Such grants would bolster initial depth, reduce slippage, and encourage arbitrage to maintain the peg.
Onboarding via Aggregators & Vaults
Integrating GHO into yield aggregators (Yearn, Beefy) through vault strategies—such as auto-rebalance in GHO/USDC pools on Curve—can channel passive capital into GHO liquidity. Partnerships with protocols like Abracadabra or Tetu to accept GHO as collateral would broaden borrowing avenues.
Cross-Chain Liquidity Bridges
Expanding Chainlink CCIP integrations and collaborating with cross-chain AMMs (Synapse, Celer) can establish GHO pools on multiple L2s, decreasing reliance on Ethereum mainnet and tapping new user bases. Multi-chain depth reduces slippage risk and enhances peg stability.
Enhanced Risk Reporting & Transparency
Launching a GHO Risk Dashboard that displays real-time peg deviations, utilization heatmaps, and audited collateral compositions builds market trust. Monthly reserve audits detailing collateral quality, liquid reserves, and stress test results further reassure lenders and borrowers.
Lower Collateral Requirements for Major Assets
Temporarily raising LTV ratios for prime collateral (e.g., 85 % for ETH, 80 % for wBTC) while maintaining conservative liquidation buffers (e.g., +5 %) can attract borrowers seeking better capital efficiency. Experimenting with LP tokens (e.g., ETH/USDC) as collateral might further broaden minting options.
Adaptive Borrow Rate Votes
Implementing scheduled, formulaic borrow rate proposals—such as automatically suggesting ±0.5 % rate adjustments every week based on utilization thresholds—would reduce governance lag and align borrow rates with evolving market demand. Faster rate updates enhance peg stability and boost confidence.
Actionable Takeaways
Key Pain Points for Yield Farmers & LPs
GHO’s utilization at 3 % reflects misaligned interest rate mechanics (3 % borrow, 0 % supply), insufficient incentives, shallow liquidity, peg concerns, and strong competition from DAI and USDC. Yield farmers lack net carry opportunities, while LPs face high impermanent loss and minimal fee revenue.
Priorities for Improvement
Governance should prioritize dynamic rate modeling, partial APR sharing, expanded and extended incentives, multi-chain liquidity seeding, and enhanced transparency. These steps can build initial momentum and gradually attract sustainable supply and borrow demand.
Outlook
If proposed changes are enacted, GHO utilization could rise toward 20 %–30 % by Q4 2025, making GHO a viable borrowing and supply option. With utilization >50 %, GHO markets would generate meaningful DAO revenue, support robust yield-farming strategies (borrow GHO → swap to high-yield assets), and improve LP returns via combined fee revenue and gauge rewards.
Call to Action
Yield farmers should monitor upcoming governance votes on rate models and APR sharing, preparing to allocate capital into GHO when supply APR becomes positive. LPs can initiate small positions in GHO/USDC pools and increase allocation during gauge reward periods. Governance participants must actively vote on proposals to adjust LTVs, supply caps, and rate-curve parameters to shape GHO’s future.
