Has Aave’s GHO stablecoin interest rate model led to its peg failure? GHO, a decentralized, overcollateralized stablecoin, aims to maintain a $1 peg but has traded below this since inception, often around $0.96-$0.985. Its interest rate, set by Aave DAO governance (currently 9.42%), lacks a dynamic adjustment mechanism like MakerDAO’s DAI, making it less responsive to market shifts. Low demand and insufficient liquidity exacerbate depegging, as borrowers sell GHO for other stablecoins, lacking incentives to hold it. Despite governance efforts, such as raising rates to 3%, and liquidity strategies on platforms like Maverick, GHO struggles to regain its peg. The absence of a redemption mechanism and reliance on governance-driven rates may hinder stability, requiring more robust liquidity and arbitrage incentives.