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Aave protocol proposes launching an overcollateralized stablecoin called GHO


July 8, 2022 · By Muhammad Awwal
Aave (AAVE)

The GHO proposal is still looking for feedback at this time, however it would allow users to borrow the stablecoin while still learning yield on their locked assets on Aave.

Aave, a leader in decentralized finance (DeFi), has announced plans to introduce GHO, an overcollateralized stablecoin, pending approval from the community’s decentralized autonomous organization (DAO). 

Aave Companies, the centralized organization that supports the Aave protocol, published the following announcement on its Twitter feed on Thursday:

“We have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem, known as GHO.”

GHO would be an Ethereum-based, decentralized stablecoin pegged to the dollar that could be collateralized with various assets of the user’s choice, according to the governance proposal revealed on Thursday. 

Users would need to mint the stablecoin using the deposited collateral in order to get GHO. The list of supported collateralized assets and the collateral ratio, however, have not yet been made available in full. 

Users are effectively borrowing stablecoins from their holdings, hence the position must be overcollateralized much like an Aave loan would be.

“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.”

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

The adoption of the stablecoin would also benefit holders of the staked AAVE token (stkAAVE), as Aave Companies has proposed that they would also be allowed to mint and borrow GHO at a reduced price.

“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,” the team stated, adding that an audit would happen over the next few weeks if all goes to plan.

Users can lend and borrow digital assets via the automated DeFi protocol known as Aave without having to go through or get permission from a centralized middleman. The most recent proposal to the DAO came at the same time that Aave’s native token, Aave (AAVE), increased by 15.04 percent in the previous day to reach $72.31 at the time of writing.

Aave is the second-largest DeFi platform in terms of total value locked (TVL), according to data from DefiLlama, with $6.76 billion. The ecosystem supports many layer 2s, including Polygon, Optimism, and Arbitrum. It is based on Ethereum.

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