AAVE is preparing to launch the GHO stablecoin
Aave, a leader in decentralised finance (DeFi), has announced intentions to introduce GHO, an overcollateralized stablecoin, subject to the approval of the community DAO.
On July 7, Aave Companies, the centralised organisation that supports the Aave protocol, issued the following statement on its Twitter page: “We have built an ARC for a new decentralised, collateral-backed stablecoin, local to the Aave ecosystem, known as GHO.”
In accordance with the governance plan unveiled on Thursday, GHO would be a decentralised stablecoin based on Ethereum and tied to the US dollar (USD) that could be collateralized with a variety of assets of the user's choosing. Although the list of supported collateralized assets and the collateral ratio have not yet been made available to the public, users would need to mint GHO against their deposited collateral in order to obtain it.
As users are effectively borrowing the stablecoin against their holdings, hence the position must be overcollateralized, much like with a typical Aave loan.
“Users will be able to mint GHO using the specified collaterals once it is released on the Aave Protocol. While borrowers continue to get interest on their underlying collateral, GHO would be backed by a diverse range of crypto-assets chosen by users.”
According to the plan, instead of using the normal reserve factor that is taken into account when users borrow other assets, 100% of the interest payments accumulated by GHO minters will be sent straight to the AaveDAO treasury.
The adoption of the stablecoin would also benefit holders of the staked AAVE token (stkAAVE), since Aave Companies has suggested that they would also be allowed to mint and borrow GHO at a reduced price.
The team said that a recommended beginning interest rate and discount rate would be presented if the community approves the implementation of the protocol enabling users to mint GHO. If all goes according to plan, an audit should take place within the next few weeks.
Stani Kulechov, the creator of Aave, revealed on Twitter that the group has a more expansive ambition for the USD-pegged asset: "Although GHO would be protected by the assets on the Ethereum market, its primary goal is to drive organic adoption through L2s to address real-world payment possibilities online and offline."
With the use of the automated DeFi protocol known as Ave, users may lend and borrow digital assets directly from one other without having to go through or ask permission from a centralised middleman. The most recent proposal to the DAO was made at the same time when Aave's native token, AAVE, increased by 11.35 percent in the last 24hrs to reach $70.78 at the time of writing. According to statistics from CoinGabbar, Aave, with a total value locked (TVL) of $6.76 billion, is the second-largest DeFi platform. The ecosystem is based on Ethereum and supports a number of Layer 2s, including Polygon, Optimism, and Arbitrum.
