Aave, the decentralized finance (DeFi) giant, has unveiled plans to launch an over-collateralized stablecoin called GHO, subject to the community decentralized autonomous organization’s (DAO’s) approval.
The announcement stated:
“We have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem, known as GHO.”
It has been reported that GHO would be an Ethereum-based and decentralized stablecoin pegged to the US dollar that could be collateralized with multiple assets of the user’s choice. To obtain GHO, users would need to mint the stablecoin against their deposited collateral.
However, the list of supported collateralized assets and the collateral ratio has yet to be detailed. As users are essentially borrowing the stablecoin against their holdings, the position will need to be over-collateralized as per any normal Aave loan.
The report stated:
“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.”
Likewise, the proposal notes 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.” Holders of the staked AAVE token (stkAAVE) would also benefit from the stablecoin’s adoption, as Aave Companies has proposed that they would also be able to mint and borrow GHO at a discounted rate.
The team stated:
“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.”
Thus, Aave is an automated DeFi protocol that enables users to lend and borrow digital assets without needing to go through or obtain approval from a centralized intermediary. The latest proposal to the DAO has coincided with Aave’s native token Aave (AAVE) gaining 15.04% over the past few days to sit at $72.31, as of July 8.