Aave is going to create a new stablecoin. Its name is GHO, and the proposal was approved yesterday by the DAO community.
Aave’s DAO approves proposal to develop a new stablecoin
Now that the proposal has been approved, the initial parameters will be chosen, also through DAO voting.
The community has given the greenlight 🟢 for GHO 👻 The next step is voting on the genesis parameters of GHO, look out for a proposal next week on the governance forum https://t.co/ba4oK50Wb8
— Aave (@AaveAave) July 31, 2022
The proposal was forwarded by Aave Companies, with the intention of launching GHO on the Aave protocol thereby allowing all users to mint new GHO tokens by providing appropriate collateral.
This will not be a stablecoin collateralized with dollars, but with a diverse set of cryptocurrencies. It will effectively be an algorithmic stablecoin that will give interest on the underlying provided, just as in all other lending transactions on the Aave protocol.
GHO will be administered by the governance of Aave
However, Aave Companies is already warning future users of GHO to beware of potential pitfalls regarding the interest rates set by the DAO, the limits of the offering, the peg stability module, and potential facilitators.
The proposal was approved with 99.9% affirmative votes, and half a million AAVE tokens used for this vote (nearly $50 million).
The DeFi Aave protocol is the third largest in the world for TVL, with over $6.5 billion, although Uniswap and Curve are very close at $6.4 billion. It serves mainly to borrow and lend cryptocurrencies so as to provide liquidity to crypto markets.
Its success is mainly due to the interest it pays on the funds locked by users. For this reason, it is possible that an algorithmic stablecoin based on Aave loans, i.e., similar to Maker’s DAI, could achieve success.
The main features of the future GHO
What is interesting is that those who deposit collateral to obtain loans in GHO will also earn interest. Since it will be necessary to deposit collateral of an amount greater than the value of the borrowed GHOs, this feature could make GHO very attractive to the crypto market.
The actual launch of GHO will take some time, because it will be created with an AIP on Aave that will need proper approval, and that will allow the DAO to oversee the distribution of the stablecoin once it is created.
It is worth noting that the price of Aave yesterday jumped 12% upon the propagation of the news regarding the approval of the proposal, to the degree that it is currently 73% higher than it was a month ago. Nonetheless, it remains 85% lower than the absolute highs of May last year.