tl;dr Summary: DeFi platform Aave has announced plans to release a decentralized, collateral-backed stablecoin. The coin will be called GHO, and has been labeled “the new $DAI.” The $AAVE token has surged at the news.
Aave is crypto’s second biggest DeFi protocol, holding over $5.5 billion total value locked (TVL) according to DeFi llama. The protocol was initially released on Ethereum in 2017, but is now available across multiple layer-1s and layer-2s alike. The protocol is owned and governed by the Aave DAO, a collection of $AAVE token holders that collectively vote on proposals to determine the protocol’s future.
This week, AAVE announced the proposal to create GHO, a “decentralised, collateral-backed stablecoin” pegged to the US dollar. Following the catastrophic demise of TerraUSD, just the mention of a decentralised stablecoin is enough to strike fear into many crypto investors, however Aave have been quick to emphasize the intrinsic differences between $UST and GHO. The coin has been colloquially referred to as “the new $DAI.”
GHO will be a fully collateralized stablecoin, with protocol users able to generate GHO after supplying crypto assets to Aave as collateral. These assets are locked up in smart contracts, and will earn interest similar to all assets deposited to Aave. A user can reclaim their crypto at any time by returning their GHO to the protocol to be burnt. If at any point the dollar value of a user’s collateral falls close to the dollar value of GHO borrowed, they will be liquidated. In the case of liquidation, the user’s collateral is sold off to ensure their deposit does not fall beneath the value of their loan.
The exact list of assets that can be used as collateral is yet to be determined, however Aave state that they will support a “diversified list of crypto-assets.” The borrow interest rate for GHO will be stable, although the Aave DAO will be able to adapt the rate intermittently based on market conditions. Stakers of the protocol’s governance token, $AAVE, will be able to mint and borrow GHO at a discounted rate.
All interest accrued from GHO lending will be returned to the Aave DAO. Aave states these funds will be used to innovate and support contributors to the ecosystem, as well as bolster the treasury during market downturns. Although GHO will initially only be available on Ethereum, Aave have stated that given the low fees and growing adoption of layer-twos, there is “an opportunity for GHO to have widespread usage” on these platforms if the coin is a success on Ethereum.
Aave founder Stani Kulechov recognised the potential of GHO on layer-2s on twitter, stating,
“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.”
He added that the GHO development is already completed and undergoing external audit, before concluding,
“The @AaveAave team has committed to ensure the Aave ecosystem can grow, innovate and lead the way to bring sound, fair and transparent finance accessible across globally.”
Aave described the move on twitter as “yet another exciting leap forward for the Aave Protocol,” and it seems like investors agree, with $AAVE up over 20% on the weekly chart. Community voting on the proposal has already begun, and with mostly positive sentiment seen in governance forums, it seems like only a matter of time until GHO goes live!
