DeFi giant Aave plans to launch its own overcollateralized stablecoin GHO

  • Aave will ensure over-collateralization for its decentralized stablecoin GHO along with offering multiple collateral types.
  • Holders of staked AAVE (stkAAVE) in the Safety Module will be eligible for a discount on minting GHO.

Open source and decentralized finance (DeFi) protocol Aave has announced plans to launch its own overcollateralized stablecoin GHO. Since this is a decentralized stablecoin, the launch will happen post the community DAO’s approval.

Aave companies, the centralized entity behind the Aaave Protocol made the announcement on Thursday, July 7. It said: “We have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem, known as GHO”.

Aave also shared the entire governance proposal. As per the proposal, GHO would be an Ethereum-based decentralized stablecoin pegged to the U.S. Dollar. Decentralized stablecoins have been in the news with the collapse of TerraUSD (UST) and the Terra ecosystem. Although Terra has a promising decentralized infrastructure, its UST stablecoins underwent rapid de-peg amid heavy selling by whales.

But Aave says that its GHO decentralized stablecoin shall be over-collateralized with assets that continue to earn yields while also adding that GHO shall be backed by multiple types of collaterals available on the Aave Protocol. the official announcement reads:

With community support, GHO can be launched on the Aave Protocol, allowing users to mint GHO against their supplied collaterals. GHO would be backed by a diversified set of crypto-assets chosen at the users’ discretion, while borrowers continue earning interest on their underlying collateral.

Minting the Decentralized Stablecoin GHO

In order to get access to GHO, users will have to mint the decentralized stablecoin against their deposited collateral. Aave has yet to announce the list of supported collateral assets and the collateral ratio.

The proposal also said that 100% of interest payment accrued by GHO minters would be “directly transferred to the AaveDAO treasury; rather than the standard reserve factor collected when users borrow other assets”.

Furthermore, holders of staked AAVE (stkAAVE) in the Safety Module will be eligible for a discount on GHO. The proposal adds:

If the community votes positively for the deployment of the protocol creating the ability for users to mint GHO, a recommended starting interest rate and discount rate will be proposed.

Aave said that it shall be conducting a due audit in the next few weeks. In a detailed Twitter thread, Aaave founder Stani Kulechov wrote:

While GHO would be secured by the assets on the Ethereum market, the main vision for GHO is to pursue organic adoption via L2s to solve real life payment opportunities across the internet and on-ground.

The Aave Protocol has been working on some key developments in the crypto space. Earlier this year in February, Aaave unveiled its open-source Lens Protocol to form a decentralized social media platform on Polygon.

About Author

Bhushan is a FinTech enthusiast and holds a good flair for understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In his free time, he reads thriller fictions novels and sometimes explores his culinary skills.

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