How is the interest rate determined?

The GHO stablecoin introduces a unique interest and discount model designed to incentivize borrowing and maintain its stability. When borrowing GHO, users accrue interest over time, similar to other stablecoins on the Aave Protocol. The interest rate for GHO is determined by the Aave DAO through governance proposals and can vary based on market conditions and demand for the stablecoin. This interest rate is decided such that the borrowing costs remain fair and competitive while supporting the overall health of the protocol.

What is the discount rate?

In addition to the standard interest rate, GHO also features a discount model that provides incentives for specific user groups or activities. These discounts apply to the borrowing interest rate, making it cheaper for certain borrowers.

Current discounts include lower rates for those who supply higher-quality collateral, are active participants in the Aave ecosystem, or apply specifically only to varies facilitator arrangements.

To benefit from these discounts, borrowers need to meet the criteria set forth by the Aave DAO. The discount model is implemented to encourage healthy borrowing behavior and to reward users who contribute positively to the ecosystem. By understanding and utilizing the interest and discount model, borrowers can optimize their costs when using GHO, making it an attractive option for stablecoin needs within the Aave Protocol. This approach promotes that GHO remains a robust and user-friendly stablecoin, providing value to a broad range of DeFi participants.