DeFi protocol Aave proposed to its community to create a USD-pegged stablecoin, GHO. The project would allow users to mint GHO against their supplied collaterals, with all the interest payments being sent to AaveDAO.
Backed by Multiple Types of Collaterals
Similar to the MakerDAO-issued stablecoin Dai, GHO would be minted based on users supplying a specific ratio of collaterals, according to the official blog post. When the borrowed amount is repaid, the protocol would burn the users’ GHO accordingly. Moreover, the collateral assets deposited on Aave would continue to generate yield while also being used as collateral.
According to Aave, a GHO aToken and GHO Debt Token will be deployed to the protocol, following the same mechanisms as any other asset listed on Aave. This integration is designed to facilitate its growth within the Ethereum blockchain.
In the wake of the fall of Terra’s algorithmic stablecoin, UST, the industry has been under pressure as the uncertainty regarding the underlying collateral of leading projects continues to rise. As such, ceiling caps on lending and borrowing are expected to be imposed as reducing risk is crucial to the project. During a market downturn, the protocol would implement the “E-Mode” as a stabilizing factor amid high market volatility.
GHO demand increases as the price of collateral contracts and users borrow more GHO using other non-volatile collateral assets to repay their positions. This would increase the amount of GHO that enters the market and reduce demand. Stablecoin holders can also access GHO with a rate close to 1:1 with zero slippage thanks to E-Mode.
Additionally, the interest rate for borrowing and lending GHO would be determined by the Aave community in the future, with a stable rate being adapted in accordance with market conditions. Aave founder Stani Kulechov shared his view on the Discount Strategy aiming to stimulate use cases across DeFi protocols.
Aave Protocol users can supply various collateral assets to earn yield while minting GHO. The interest rate strategies would be governed by the Aave DAO, hence offering a sense of predictability on interest rates.
— stani.lens (,) (@StaniKulechov) July 7, 2022
The founder positioned the newly conceived product as “solving real-life payment opportunities across the internet and on-ground.” Moving forward with this stablecoin project requires further governance approval on Snapshot from AaveDAO. If the community approves such a proposal, the first audit – conducted by OpenZeppelin – will be scheduled for July 11th.