Aave DAO, the governance body of decentralized finance (DeFi) giant Aave (AAV), voted unanimously to create an oversized stablecoin called GHO.
The Aave company submitted the proposal to create GHO on July 28, which received an overwhelming community vote of 99.9% within three days. The proposal closed on July 31 at 10:00 GMT with 501,000 AAVE tokens pledged in favor of the creation of the crypto-collateral-backed stablecoin.
GHO is said to be an Ethereum-based, decentralized USD-pegged stablecoin that could be backed by multiple crypto assets. The next step in the process would be the creation of the GHO using a new Aave Enhancement Protocol (AIP), and any user looking to mint GHO can do so by depositing any other crypto asset accepted by the Aave protocol.
Aave is a noncustodial decentralized crypto lending and borrowing platform that hopes to leverage its overcollateralized stablecoin to provide better liquidity and a passive income opportunity.
Being an overcollateralized stablecoin, users must always deposit a higher amount of crypto than the GHO mint value. This would ensure an oversized loan on these stablecoins. Once the user has repaid the loan, their position will be liquidated and their borrowed GHO will be burned.
The loan protocol will also charge interest on loans taken out in the GHO, with payments going to the Aave DAO treasury, rather than the standard reserve factor collected when users borrow other assets.
Aave’s announcement of a crypto-collateralized stablecoin brought back memories of the recently de-indexed TerraUSD (UST), the stablecoin crash that wiped out nearly $40 billion of investors’ money. Many users were quick to dismiss it as another stablecoin slated for unpecking.
They still work. Go #AAVE
Just deploy more capital. Stable girls. pic.twitter.com/PnNFLwX8mX
— Turbolion (@HogSomFan) July 31, 2022
Many Aave supporters were quick to point out the malfunctioning UST that rendered it unsecured which ultimately led to its de-anchoring, however the next GHO would be over-secured like the DAI which means that the assets backing the stablecoin will always be of higher value. . An user wrote:
“UST was unsecured and was run by a scammer who attacked people who said he was a scammer. Aave is building an oversized algorithmic stablecoin similar to DAI. Aave is the world’s largest DeFi lending protocol and does not was that transparent.
The native token of the popular DeFi protocol has risen over 15% in the past week following the GHO proposal and has seen a 4% increase in the last 24 hours after approval.