At this point, GHO would enable Aave users to borrow the stablecoin while still learning the yield on their locked assets.
Aave, a DeFi giant, has announced plans to produce an overcollateralized stablecoin dubbed GHO, subject to the approval of the community DAO.
On July 7, Aave Companies — the main company managing the Aave protocol — published the following news on its Twitter page:
“We have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem, known as GHO.”
GHO, according to the governance proposal revealed on Thursday, would be an Ethereum-based and decentralized stablecoin linked to the US dollar (USD) that could be collateralized with a variety of assets of the user’s choosing.
To receive GHO, users must mint the stablecoin against their deposited collateral; however, the list of supported collateralized assets and the collateral ratio has yet to be specified.
Because users are borrowing the stablecoin against their holdings, the position must be overcollateralized in the same way as any other Aave loan.
“With community support, GHO can be released over the Aave Protocol, allowing users to mint GHO against collateral supplied.” GHO would be backed by a diverse set of crypto-assets chosen by users, while borrowers would continue to receive interest on their underlying collateral.”
According to the idea, GHO minters’ interest payments would be “directly transmitted to the AaveDAO treasury; rather than the customary reserve component collected when users borrow other assets.”
Holders of the staked token (stkAAVE) would profit from the stablecoin’s acceptance as well, as Aave Companies has suggested that they be able to mint and borrow GHO at a reduced rate.
“Provided the community votes positively for the implementation of the protocol enabling users to mint GHO, a recommended starting interest rate and discount rate will be presented,” the team noted, adding that an audit will take place within the next few weeks if all goes as planned.
Stani Kulechov, the founder of Aave, indicated on Twitter that the company has a bigger goal for the USD-pegged asset:
“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.”
Aave is an automated DeFi protocol that allows users to lend and borrow digital assets without the requirement for a centralized intermediary’s authorization. The latest DAO proposal has coincided with Aave’s native token AAVE rising 15.04 percent in the last 24 hours to $72.31 at the time of writing.
Aave is the second-largest DeFi platform in terms of total value locked (TVL) with $6.76 billion, according to DeFi Llama statistics. The ecosystem is built on Ethereum and supports a variety of Layer 2 protocols, including Polygon, Optimism, and Arbitrum.
