Aave DAO Approves Creation of GHO Stablecoin

2022/08/01By: L, Laura

An overwhelming majority of Aave DAO voters have approved the creation of a new stablecoin. The stablecoin will be supported by over-collateralized assets that will continue to earn returns.

 

The proposal, submitted by Aave, was supported by 99.9% of voters who pledged 500,000 AAVE to approve the creation of GHO, a collateral-backed stablecoin composed of other cryptocurrencies.

 

Aave is a decentralized, non-custodial market protocol that enables users to borrow and lend cryptocurrencies. While providing liquidity to the cryptocurrency market, users can earn passive income on digital assets allocated to a smart contract. It is open-source and boasts $9.8 billion in liquidity, according to Aave’s website.

 

Users looking to mint GHO first will deposit cryptocurrencies accepted by Aave. People who borrow GHO against crypto assets will still earn interest on the underlying collateral used to mint the stablecoin. The lending protocol will also charge interest on loans taken out in GHO, with payments going back to the Aave DAO.

 

The deposits users allocate in order to mint GHO will have to be greater than the value of GHO they receive, meaning that the loans will be over-collateralized. When users repay a borrowing position or are liquidated, the GHO lent will be burned from the protocol.

 

Even though the measure was approved, GHO’s introduction will take time as it’s implemented through an Aave improvement protocol (AIP), with the Aave DAO in charge of supervising the stablecoin’s distribution once its creation has been vetted.

 

The vote spanned a total of three days, and the price of AAVE—the coin native to the lending platform—spiked immediately following the proposal’s approval, to around $108 from $95.40. At time of publication, AAVE was valued at $102.50, up 4.5% in the past 24 hours.

 

According to CoinMarketCap, the market capitalization of all stablecoins to date is over $153 billion, comprised primarily of Tether’s USDT and Circle‘s USDC. U.S. legislation on the regulation of digital asset classes was recently delayed.

 

GHO will be pegged to the U.S. dollar, while the stablecoin will be backed by a variety of cryptocurrencies that users can already deposit on the platform. According to the GHO presentation on the Aave website, the native rate of the stablecoin will be determined by the Aave DAO.

 

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