GHO Stablecoin Fails to Enforce Dollar Peg Amid Criticism, Receives D Grade From Bluechip

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Roughly three weeks ago, Bitcoin.com News covered the stablecoin GHO, when it achieved a notable milestone by reaching $0.98 per coin. However, on December 11, the token experienced a slight dip, hitting $0.975 per unit. Despite some improvement in its stability, the stablecoin has still not enforced its intended goal of a $1 peg.

GHO’s Struggle for Stability

Launched by Avara (formerly known as Aave), GHO has been a noteworthy example in the realm of dollar-pegged tokens. Since its inception in mid-July, the digital currency has consistently failed to maintain its peg to the U.S. dollar, persistently falling short of this mark. Despite a low point of $0.917 on October 24, 2023, GHO saw an upswing towards the end of November, reaching $0.98 per coin.

Nevertheless, the stability was short-lived. By December 11, GHO had dropped to $0.975 and, despite a spike to $0.987, it has not reached the intended $1 mark to date. Interestingly, since October 21, an extra 10 million coins have been introduced. With a total of 34.72 million coins in circulation, the market capitalization of GHO barely exceeds $34 million, primarily due to its price not aligning with the dollar. The stablecoin has faced criticism for these fluctuations.

Chroma’s Jack Longarzo remarked on X, “Scaling stablecoins is a demand side problem, not a supply side problem. The problem with GHO is AAVE only has an advantage on the supply side and isn’t positioned to create demand to actually hold the stablecoin. This won’t scale. Time to GHO build something else.” This critique was in response to a post on X by Stani Kulechov, founder and CEO of Avara.

Kulechov stated, “GHO is already bringing 2.1M in annualised revenue @ tiny 35M mint cap. Also, GHO peg is getting better. It’s [a] matter of time when GHO is ready for scale, and imagine the revenue for the Aave DAO.”

Bluechip Stablecoin Ratings Gives GHO a D Grade Assessment

Bluechip, an independent, nonprofit stablecoin rating agency, has assigned GHO a D grade, based on stability and risk factors. Bluechip’s rating system parallels that of a school report card, where A+ represents the highest achievable score, and F marks the lowest. Bluechip’s report on GHO points out its consistent underperformance relative to the $1 peg and suggests that a short-term recovery of the peg is unlikely.

This is attributed to a “lack of strong stability mechanisms to enforce a $1 peg.” The report continues, “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,” the report adds. However, the report further says GHO can improve to a B/B+ rating.

“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,” the report concludes.

What do you think about the stablecoin GHO failing to achieve its intended $1 parity? Share your thoughts and opinions about this subject in the comments section below.