Aave plans to launch a new type of decentralized stablecoin GHO

The Aave community is considering introducing a new decentralized stablecoin, GHO. This stablecoin, pegged to the US dollar, will be over-collateralized by various crypto assets and managed by the Aave protocol.

The main features of GHO include:

• Complete Decentralization
• Over-collateralized by assets that continuously generate income
• Supports multiple collateral types within the Aave protocol
• Governed by the Aave community

If approved, users will be able to use their selected cryptocurrencies as collateral on the Aave protocol to mint GHO. Borrowers can continue to earn interest from their collateral. All decisions related to GHO will be managed by the Aave governance mechanism.

The introduction of GHO is expected to enhance the competitiveness of stablecoin lending on the Aave protocol, providing users with more options. The interest income generated from GHO lending will be entirely attributed to the Aave DAO, bringing it an additional source of revenue.

The market capitalization of stablecoins has now reached approximately $150 billion, becoming an important component of the cryptocurrency sector. Compared to traditional stablecoins, decentralized stablecoins offer greater transparency and censorship resistance, aligning more closely with the Web3 concept. As crypto assets become more widespread, the use of stablecoins is expected to increase further.

Mechanism of GHO

As a decentralized stablecoin on the Ethereum mainnet, GHO will be created by users. Users must provide collateral at a specific collateralization rate to mint GHO. When users repay their loans or are liquidated, the corresponding GHO will be destroyed. The interest generated by GHO minters will be directly transferred to the Aave DAO treasury.

GHO introduces the concept of "facilitators", which are protocols or entities that can generate and destroy GHO after approval by Aave governance. Each facilitator has a "bucket" that represents its limit for generating GHO.

Once effective, this proposal will activate the first facilitator - the Aave market on Ethereum. The governance body can allocate specific bucket capacity to this facilitator to guide GHO liquidity.

Aave and GHO Integration

The Aave-GHO integration will use the same mechanism as other assets in the Aave protocol, deploying dedicated GHO aTokens and debt tokens. Once approved, these tokens can be registered as GHO tokens on the Aave Ethereum market.

The borrowing rate of GHO will be determined by the Aave DAO, remaining stable but adjustable according to market conditions. This retains the flexibility of the Aave borrowing rate model, allowing for the implementation of any rate strategy deemed appropriate by the community in the future.

GHO Discount Model

The initial deployment will include a discount strategy mechanism. Participants in the security module, ( stkAAVE holders, can receive a discount on GHO borrowing rates. Each stkAAVE will set a specific amount of GHO discount quota, with discount rates ranging from 0% to 100%, and the specific parameters will be controlled by Aave governance.

The Synergy between Aave V3 and GHO

Through isolation mode, users can generate GHO using various assets supported by Aave while reducing risks. The supply and borrowing limits also help in risk control. E-Mode plays a stabilizing role during market fluctuations, allowing stablecoin holders to exchange GHO at a ratio close to 1:1.

The Portal function will provide an ideal way for GHO's multi-chain expansion, enabling trustless cross-network distribution while maintaining the high security of Ethereum.

Further Applications of Governance

stkAAVE holders can mint GHO at a discounted price, encouraging them to protect the Aave protocol. Aave DAO will generate substantial income through the creation of GHO, which can be used for innovation, supporting ecosystem contributors, or other purposes.

The DAO will also determine the native interest rate of GHO and adjust it through the governance process to achieve Decentralization of monetary policy control.

Market Applications of GHO

GHO is expected to be widely used on Layer 2, benefiting from low transaction fees. Cash rewards and hackathons can encourage the development of GHO payment methods, targeting both crypto-native users and mainstream users.

GHO will provide users with security and Decentralization, while developing application scenarios for mainstream users, especially in the payment sector. Aave Grants DAO will promote the construction of these applications through cash rewards and hackathons.

If the community supports the deployment of GHO, initial interest rates and discount rate proposals will be made, and adjustments may be made in the future through governance. Cross-chain deployment of GHO requires further governance approval. The community will also decide whether to provide retroactive rewards for GHO contributors.

Once community approval is obtained, OpenZeppelin and PeckShield will conduct a security audit in the near future.

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