What is this about?

The GHO Stability Module (GSM) is a peg stability mechanism similar to MakerDAO’s PSM, aimed at maintaining the peg of GHO, Aave's stablecoin. The GSM's codebase is publicly available on GitHub and is undergoing security audits by SigmaPrime, BGD Labs, and Certora. The community is encouraged to review the code and provide feedback, especially on security-related issues.

How is the community reacting?

The community is actively discussing the GSM's launch strategy and parameters. ChaosLabs has proposed launching the GSM with USDC and USDT, each with an exposure cap of 5M, and initially setting both Buy Fee and Sell Fee to 0 to promote peg stability². Gauntlet agrees with these suggestions but also points out that the debt ceiling for USDT and USDC may need to be adjusted as the GHO supply increases. They also highlight the importance of developing optimal fee strategies to incentivize GHO repeg and prevent adversarial depegging³. Concerns about the risks of starting with a 0/0 Buy/Sell fee have been raised by WintermuteGovernance and ApuMallku, as it could lead to the PSM being drained ^4,5. The community is looking forward to further recommendations from ChaosLabs on the initial launch parameters, taking into account factors like GHO market cap and borrow rates⁸. Additionally, ApuMallku has inquired about the status of a development from AaveLabs⁹.

Gauntlet and ChaosLabs have recommended specific launch conditions and parameters for the GSM, emphasizing the importance of GHO trading above $0.995 to prevent reserve depletion. Key launch conditions include GHO consistently trading above $0.995, a 30-day period of GHO trading above $0.97, and GHO annualized volatility being below 10%. The proposed GSM parameters include freeze/unfreeze ranges of (0.99, 1.01) and (0.995, 1.005) respectively, a buy/sell fee of 0.2%, and GSM caps of 3.5 million for USDC and USDT. These parameters are designed to mitigate risks, such as those demonstrated by the USDC depeg event in March 2023, which affected the DAI PSM. The recommendations are based on current market conditions and will be revised before the GSM launch to reflect any significant changes in the market and GHO conditions [Gauntlet ¹ - 10].

Why this is positive?

• The GSM is a strategic tool for maintaining the peg of GHO, which is crucial for its stability and user trust.
• The community's involvement in the discussion and development process ensures a diverse range of perspectives and potential improvements to the GSM.
• Security audits by reputable firms add a layer of trust and reliability to the GSM's codebase.
• The proposed launch conditions and parameters by Gauntlet and ChaosLabs are designed to prevent reserve depletion and mitigate risks.

Why this is negative?

• There is a risk associated with launching the GSM with a 0/0 Buy/Sell fee, as it could potentially be exploited, leading to the draining of the PSM.
• The need to adjust the debt ceiling for USDT and USDC as the GHO supply grows could introduce complexity and require continuous monitoring and updates.

Next actions

• The community is waiting for updated recommendations for the GSM's initial launch parameters from [ChaosLabs. -](https://governance.aave.com/u/ChaosLabs. -) ApuMallku's inquiry about the status of a development from AaveLabs is pending a response.