Aave (AAVE) submits the idea of ​​the GHO to its governance

The Aave teams presented to their governance a new stablecoin project called the GHO. With its over-collateralisation mechanism, it would then be integrated into the operation of the protocol, which has already shown its resilience in the past.

Towards an Aave native stablecoin (AAVE)?

The Aave protocol teams have opened a discussion on the governance forum of their decentralized autonomous organization (DAO), about the creation of a new stablecoin. This stablecoin, dubbed the GHOwould be indexed to the dollar and offers interesting ideas that should be detailed.

The GHO would be generated by the borrowers themselves in exchange for a over-collateralisation of their debt. That is to say that we come to deposit cryptocurrencies as collateral, for a higher value than what we wish to borrow. As with any debt, the GHO will involve paying interest. These interests will then be entirely donated to the DAO treasury.

With this new stablecoin, Aave would also introduce the concept of “Facilitator”. These would be actors such as decentralized finance (DeFi) protocols or even fully centralized entities that would be pre-approved by governance. The role would allow them the creation of GHO according to their own mechanisms.

These mechanisms may be varied, such as securing the GHO by an algorithm or by bank reserves. The interest of this diversity is that if a method fails, the whole structure does not sit completely on it.

Each facilitator will also have a maximum limit of GHO, that he can afford to hit. By definition, Aave would therefore become the first Facilitator of the GHO with its over-collateralisation mechanism.

GHO will be minted on the Ethereum (ETH) blockchain and can be sent to other networks thanks to the Portal bridge of the V3 of the protocol.

👉 To go further – Find our guide on the Aave protocol (AAVE)

Discover Stake DAO

Make work your crypto-currencies 👆

toaster icon

Investing in cryptocurrencies is risky (learn more)

The Aave community at the heart of the project

It is important to emphasize that this project will only see the light of day if the DAO agrees. The same goes for all upcoming decisions on the stablecoin. Depending on the governance votes, stkAAVE holders may benefit from a interest reduction on the GHO loan. To obtain stkAAVE, you must stake Aave tokens in the treasury that secures the protocol: the SafetyModule.

In the governance thread, a user asked how investors would be encouraged to maintain the peg to the dollar. Marc Zeller, Developer Relations Manager at Aave answered this question:

“If the GHO is above its peg for some reason, it is profitable to strike GHOs with, for example, another stablecoin and short it [contre d’autres stablecoins]. If the GHO is under its peg, it is profitable to repay the debt. This allows the total supply of the GHO to fall as the debt is paid off and the burnt GHO helps re-establish the peg. »

Thus, if the price of GHO falls against the dollar, it mechanically reduces our debt. As a result, it becomes in our interest to reimburse it in order to benefit from arbitration. If, on the contrary, its price rises, the idea will then be to exchange the GHO against other stablecoins and realize added value by this occasion.

As with any debt, an investor will have to pay attention to its collateralization so as not to be liquidated. If this should happen, the “under-secured” GHO will be burned and the borrower will be penalized on its collateral. This principle therefore remains similar to the rest of the protocol.

If the idea of ​​the GHO is interesting, it will have to confront the opinions of the community for the moment. However, the Aave protocol has, until now, su show resilience in times of crisisthus, it has some legitimacy for a stablecoin project.

👉 Also in the news – Shiba Inu (SHIB) to launch decentralized stablecoin and reward token

cryptoast logo

Discover our Private Group

Content with high added value and quick to consume

toaster icon

Source: Aave Governance Forum

Newsletter 🍞

Get a crypto news recap every Sunday 👌 And that’s it.

What you need to know about affiliate links. This page presents assets, products or services relating to investments. Some links in this article are affiliated. This means that if you buy a product or register on a site from this article, our partner pays us a commission. This allows us to continue to offer you original and useful content. There is no impact on you and you can even get a bonus by using our links.

Investments in cryptocurrencies are risky. Cryptoast is not responsible for the quality of the products or services presented on this page and could not be held responsible, directly or indirectly, for any damage or loss caused following the use of a good or service highlighted in this article. Investments related to crypto-assets are risky in nature, readers should do their own research before taking any action and only invest within the limits of their financial capabilities. This article does not constitute investment advice.

Leave a Comment