Aave proposes stablecoin to rival MakerDAO’s DAI News ▸ Aave ▸ Stablecoins
Aave proposes stablecoin to rival MakerDAO’s DAI
The proposed stablecoin GHO will be overcollateralized, pegged to the U.S. dollar, and backed by Aave Protocol collaterals.
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Updated: Jul. 8, 2022 at 1:50 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Aave Companies, the firm behind decentralized finance (DeFi) protocol Aave, introduced a proposal to create a native decentralized USD-pegged stablecoin GHO on July 7.
The proposal is up for discussion and needs to pass the governance vote to be implemented.
If the community accepts the proposal, Aave users will be able to mint GHO by supplying collateral. When the users repay their debts or are liquidated, their GHO tokens will be burned, according to the proposal.
The proposed stablecoin is similar to DAI of the MakerDAO protocol, the most popular stablecoin on the Ethereum network.
GHO will be overcollateralized and backed by a “diversified set of crypto-assets chosen at the users’ discretion,” the proposal said. The users’ assets will continue to act as collateral and generate interest at the same time.
Aave founder Stani Kulechov wrote in a Twitter thread:
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.
— stani.lens (🌿,👻) (@StaniKulechov) July 7, 2022
Aave DAO will determine the interest rates for borrowing GHO, with a stable rate that may be adjusted based on market conditions, the proposal said.
The initial implementation of GHO will include a discount strategy, allowing Aave’s Safety Module participants (stkAAVE holders) to borrow GHO at a discounted interest rate, according to the proposal. The Aave DAO will determine the discount percentage, the proposal said.
Minting of GHO will fetch substantial revenue in the form of fees for the Aave DAO. Additionally, the interest paid on borrowed GHO will go directly to Aave DAO, the proposal stated. It added:
“This increase in revenue can be used to innovate, support contributors in the ecosystem, bolster the treasury during market downturns or anything else the DAO decides.”
The development of GHO is complete, and the first audit is scheduled for July 11, according to Kulechov.
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Aave is an open source and non-custodial protocol enabling the creation of money markets.