DeFi protocol AAVE is proposing to create its own collateral-backed stablecoin GHO, which will be pegged to the USD. Aave Companies, the company behind AAVE, has submitted the proposal for its decentralized stablecoin. The announcement was made by AAVE in its recent blog†
AAVE allows users to mint GHO against their collateral
AAVE stated that the stablecoin would be backed by various cryptocurrency assets selectable by the user community. AAVE users can use the assets they have provided as collateral to store the stablecoin. The assets will also generate income during the time they are held as collateral.
GHO will be a decentralized stablecoin that will be deployed on the Ethereum mainnet. For users to borrow GHO, they have to provide collateral in a certain proportion to store it. When a user pays back the borrowed position, the user’s GHO is burned by the protocol.
Instead of the usual reserve factor taken into account when users borrow other assets, all interest payments from GHO mints would be deposited immediately into AaveDAO’s treasury.
The proposal also put forward a concept called ‘facilitators’. This proposal, if approved, will enable the generation and burning of GHO tokens in a reliable manner. AaveDAAO determines the borrowing rate for GHO. It will be determined according to market conditions.
The AAVE team envisions greater adoption of GHO within and beyond the crypto community. As the team points out, GHO also has low transaction fees on L2s.
In a nutshell, GHO will be decentralized and also over-collateralized by various assets. It is backed by multiple types of collateral that will be available on the Aave protocol.
The proposal will be defined by a snapshot that will determine the fate of the GHO and whether to move forward with the GHO.