Aave is one of the most prominent names in the world of decentralized finance (DeFi) and it recently disclosed plans of launching GHO, which is an overcollateralized stablecoin. The launch is subject to the approval of the decentralized autonomous organization (DAO) of the community.
Aave companies made the announcement, which is the centralized entity that offers its support to the Aave protocol. The announcement was made last Thursday via their Twitter page in which they said that an ARC had been developed for a collateral-backed and decentralized stablecoin, which would be native to the Aave protocol.
The governance proposal that was unveiled on Thursday mentioned that GHO would be a decentralized stablecoin based on the Ethereum blockchain and it would be pegged to the US dollar. Users would have the option of collateralizing it with the asset of their choice, as there will be multiple assets to choose from.
Users would be able to obtain GHO by minting it against the collateral they have already deposited. But, it should be noted that they did not provide any details about the assets that would be supported for collateral and the ratio that would be needed. As in the case of other Aave loans, overcollateralization would be necessary because the stablecoin would be borrowed by the users against their crypto holdings.
Interest payments to continue
The proposal dictated that they would launch the GHO token with the support of the community on the Aave protocol, so users would be able to take advantage of their deposited collaterals to mint GHO. It further asserted that a diverse range of crypto assets would be available for users to choose from and borrowers would still be able to use their underlying collateral to earn interest.
As a matter of fact, the standard reserve factor, which is usually collected from interest payments when users are borrowing other assets would not be applicable. Instead, 100% of the payments would be transferred directly to the AaveDAO treasury.
The stablecoin’s adoption is also expected to benefit those who have the staked AAVE token (stkAAVE). This is because Aave companies asserted that these holders would be given a discounted rate for borrowing and minting GHO.
A broader vision
Stani Kulechov, the founder of Aave, said via Twitter that their plans were quite different for the USD-pegged stablecoin. He said that even though assets on the Ethereum blockchain would be used for securing GHO, their vision is to ensure organic adoption of the stablecoin for providing real life payment opportunities not just online, but offline as well.
The Aave protocol is considered one of the second-largest protocols in the decentralized finance (DeFi) space that has a TVL of about $6.76 billion. It allows people to borrow and lend digital assets without seeking the approval of a centralized authority. Its ecosystem is based on the Ethereum blockchain and the announcement of the stablecoin saw the protocol’s native token Aave rise by 15.04%. It also supports several layer 2s, such as Arbitrum, Optimism, and Polygon.