Popular open-source liquidity protocol Aave has recently proposed the creation of a decentralized algorithmic stablecoin GHO. With this, the protocol aims to improve its lending platform’s features.
GHO will be a fully collateralized stablecoin, native to the Aave ecosystem and initially available on the Ethereum network. However, the stablecoin could make an entrance into other Aave-supported blockchains based on community votes.
Aave is planning to allow users to mint GHO tokens against their supplied collaterals. Basically, several cryptocurrencies that the users choose will back the GHO stablecoin. On the other hand, borrowers will continue earning interest on their underlying collateral.
GHO will work similarly to existing algorithmic stablecoins that’ll mint exactly $1 worth of tokens when users provide $1 worth of cryptocurrency. However, a user must supply collateral (at a specific collateral ratio) to be able to mint GHO.
Similarly, when a user repays a borrow position, the GHO protocol will burn the user’s GHO according to the proposal.
Aave governance will have a look at all the decisions relating to GHO. As for the revenue, GHO will generate revenue by sending 100% of interest payments on GHO borrows to the DAO.
Aave stated that stablecoin would rely on “facilitators” for the smooth functioning of GHO. For example, another protocol can trustlessly generate and burn GHO tokens. However, Aave governance will approve the facilitators.
This is to ensure that facilitators have limits and don’t abuse their powers in the future. As for the interest rates, AaveDAO will decide the borrow interest rates for the GHO stablecoin.
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