Popular decentralized finance (DeFi) protocol Aave (AAVE) has proposed to the decentralized autonomous organization (DAO) the introduction of a native, decentralized, fully collateral-backed, USD-pegged stablecoin on the Ethereum (ETH) mainnet – dubbed GHO.
“Calling all GHOsts,” said Aave on Thursday, announcing that they’ve created a new Aave Request for Comments (ARC) – which is the first step in the governance improvement process.
Per the governance proposal,
“With community support, GHO can be launched on the Aave Protocol, allowing users to mint GHO against their supplied collaterals.”
As for these collaterals, GHO would be backed by “a diversified set of crypto-assets chosen at the users’ discretion.” The borrowers would continue earning interest on their underlying collateral.
GHO would be created by users. These are borrowers, and each would need to supply collateral at a specific collateral ratio to be able to mint GHO. When a borrower repays a borrow position or gets liquidated, the GHO protocol would burn their GHO. The accumulated interest payments would be transferred to the AaveDAO treasury.
4/ Based on the proposal, all users with stkAAVE in the Safety Module will be eligible for a discount on GHO 👀
— Aave (@AaveAave) July 7, 2022
GHO would introduce the concept of Facilitators (e.g., a protocol, an entity, etc.), which has the ability to trustlessly generate and burn GHO tokens, and each would have to be approved by Aave Governance.
For each Facilitator, Governance would also approve “a bucket” for each Facilitator, which is the upward limit of GHO a specific Facilitator can generate.
Ultimately, Aave Governance would have all the decision-making power relating to GHO.
The proposal argued that,
“If approved, the introduction of GHO would make stablecoin borrowing on the Aave Protocol more competitive, provide more optionality for stablecoin users and generate additional revenue for the Aave DAO by sending 100% of interest payments on GHO borrows to the DAO.”
Aave founder Stani Kulechov also shared the news on his Twitter account, stating that the goal for GHO in the future is for it to “pursue organic adoption” via layer-2s (L2s) to solve real-life payment opportunities.
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.
— stani.lens @ ETHLatam 🇦🇷 (🌿,👻) (@StaniKulechov) July 7, 2022
The proposal’s argument is that stablecoins have risen to a “central position” in the crypto space, garnering billions in market capitalization, and their usage will continue to grow and provide a fast, efficient, borderless, and stable way to transfer value on the blockchain.
Within the stablecoin category, decentralized stablecoins “add transparency and censorship resistance to this list of benefits – an integral part of web3.”
Per DeFi Llama, the Total Value Locked (TVL) in DeFi is currently 78.27bn. MakerDAO (MKR) dominance is 9.9%, standing at the top of the list as the largest DeFi platform per TVL, with 7.75bn. Aave occupies second place with the TVL of 6.69bn.