A recent report from IntoTheBlock has examined the activities of the second-largest Aave GHO whale, known as luggisdoteth, who employs a leveraged long ETH strategy using GHO.
This whale has been gradually increasing their ETH position by minting GHO with wstETH and swapping the stablecoin for ETH.
While leveraging carries inherent risks, this whale utilizes low leverage and actively manages their position, thereby reducing the risk of liquidation. Despite GHO’s historical peg issues and the challenges of manual leveraging, the GHO market’s peg stability has improved significantly. Since February, the peg has been well-maintained, thanks to the safety module in place.
The whale can also profitably arbitrage any downside depegs by selling their GHO, which helps restore the peg and allows them to repay part of their loans. This strategy leverages the benefits of being the largest holder of AAVE, which includes low borrow rates due to staked AAVE and incentives for minting GHO, making it one of the cheapest leveraged long ETH options in DeFi.
However, the whale’s strategy could impact GHO liquidity in DeFi markets. If they were to close their position to avoid liquidation, they would need to buy back $10 million worth of GHO, nearly 60% of GHO liquidity. Such a large buyback could depeg GHO to the upside, causing imbalances in Automated Market Maker (AMM) pools. This could potentially result in negative economic impacts on liquidity providers through impermanent loss and liquidations for users in short GHO positions.
Overall, while the strategy used by the second-largest GHO whale is relatively low risk and offers significant benefits, it also poses some risks to GHO’s stability due to the size of the position.
Disclosure: This is not trading or investment advice. Always do your research before buying any Metaverse crypto coins.