DeFi platform Aave plans to launch an overcollateralized stablecoin GHO. The centralized entity supporting the Aave protocol, Aave Companies, said they have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem. It’s called GHO.
The new token would be an Ethereum-based and decentralized stablecoin pegged to the US dollar. It would be collateralized with multiple assets of the user’s choice. Users would need to mint the stablecoin against their deposited collateral. With users borrowing the stablecoin against their holdings, the position needs to be overcollateralized as per any normal Aave loan.
According to the governance newsfeed, GHO would be backed by a diversified set of crypto assets chosen at the users’ discretion. Borrowers can continue earning interest on their underlying collateral. In its current form, the GHO proposal does not require liquid reserves. The project’s initial collateral would come from individual minters’ deposits. Moreover, the DAO will determine the interest rates. The proposal states that 100% of the interest payments accrued by GHO minters would be directly transferred to the AaveDAO treasury. Holders of stkAAVE would reap benefits from the GHO’s adoption.
Stani Kulechov, Aave founder, tweeted that the team has a broader vision of the USD-pegged token. Their core vision is to pursue organic adoption via L2s to solve real-life payment opportunities across the internet and on-ground. A recommended starting interest rate and discount rate would be proposed if the community votes positively for the deployment of the protocol. As such, users will be able to mint GHO.
The team outlined that GHO brings about the concept of Facilitators, basically a protocol or entity to trustlessly generate or burn the stablecoin. If approved, any facilitator would have to be given the go-ahead by Aave Governance. It would also have to approve something a bucket, that is, the upward limit of GHO a specific facilitator can generate.
Aave sees GHO adoption both inside and outside of the crypto-native community.