The open-source, non-custodial liquidity protocol – AAVE submitted a proposal to the DAO concerning the introduction of a native decentralized, collateral-backed, and community-governed stablecoin called GHO, pegged to USD.
Stablecoins have become a core part of the crypto market; amounting to over $150 billion in market capitalization. They provide an easy route to exchanging digital assets from one value to another. Unlike centralized stablecoins; decentralized stablecoins (like GHO) stand to provide transparency and censorship-resistant fiat-denominated currency on the blockchain.
No word has been received concerning the decision of the DAO, but the team says that if the proposal is approved, users would have a larger option of stablecoins to borrow, and the DAO would be able to generate additional revenue from interest payments on GHO borrows.
How GHO works
The Aave’s multi-collateralized stablecoin will be created by borrowers. Users will need to provide collateral to be able to mint GHO. The amount of GHO they would be able to mint will be relative to the amount of collateral supplied. Basically, it works in a 1:1 format.
When a user reclaims the collateral, the GHO minted by that user is burned and all interest payments incurred by the user will be transferred to the DAO treasury. Interest rates on GHO borrows will be decided by the Aave DAO to ensure borrow interest rate flexibility.
The introduction of GHO will give birth to the concept of facilitators. These facilitators could be other protocols or an entity. Approved facilitators will be able to trustlessly mint GHO tokens based on the bucket (amount of GHO that can be minted by that facilitator) assigned to them.
AS a means of incentivizing users who have utilized the Safety Module, stkAAVE holders would be able to mint GHO at a lower interest rate, allowing them to get the stablecoin at a discounted price.
Though the concept of a decentralized stablecoin was well approved by most users, the final approval or disapproval of the proposal has not been made by the DAO.
