Aave plans to launch a decentralized USD stablecoin GHO

The Aave community is considering launching a new decentralized dollar stablecoin called GHO. This proposal has been submitted to the DAO for discussion and feedback.

The main features of GHO include:

• Complete Decentralization
• Over-collateralized by assets that can generate sustained income
• Supports multiple Aave protocol collateral
• Governed by the Aave community

If approved, GHO will first be launched on the Aave protocol. Users can mint GHO based on the collateral they provide while continuing to earn interest on their collateralized assets. All decisions related to GHO will be handled by Aave governance.

The introduction of GHO is expected to enhance the competitiveness of stablecoin lending on the Aave protocol, providing users with more options. In addition, the interest generated from GHO lending will belong entirely to the DAO, bringing additional income to the Aave DAO.

The market capitalization of stablecoins has currently reached approximately $150 billion, becoming an important component in the field of cryptocurrency. Compared with traditional stablecoins, decentralized stablecoins have higher transparency and censorship resistance, which also aligns with the core principles of Web3. As crypto assets integrate with more users, the adoption of stablecoins is expected to further increase.

The Operating Mechanism of GHO

As a decentralized stablecoin on the Ethereum mainnet, GHO will be created by users. Users need to provide collateral at a specific collateralization ratio to mint GHO. When users repay their loans or are liquidated, the GHO protocol will destroy the corresponding amount of GHO. All interest generated by GHO minters will be directly transferred to the AaveDAO treasury.

GHO introduces the concept of "facilitators", which are protocols or entities that can generate and destroy GHO tokens without the need for trust. Any facilitator must receive approval from Aave governance. Different facilitators can apply different strategies to generate or destroy GHO.

Aave governance also needs to approve a "bucket" for each facilitator, which is the upper limit of GHO that the facilitator can generate. If the proposal is passed, the Aave protocol will become the first facilitator, especially the AAVE market on Ethereum.

Integration of Aave and GHO

The Aave-GHO integration adopts the same mechanism as other assets in the Aave protocol, which is to deploy specific GHO aTokens and GHO debt tokens. These tokens will be registered as GHO tokens in the Aave Ethereum market after the proposal is approved.

The borrowing interest rate of GHO will be determined by AaveDAO, remaining stable but adjustable according to market conditions. This design retains the flexibility of the borrowing interest rate model of the Aave protocol.

GHO also introduces a discount model. The initial deployment allows participants in the security module ( stkAAVE holders ) to receive a discount on GHO borrowing rates. The discount ranges from 0% to 100%, with specific parameters controlled by Aave governance.

The Synergy between Aave V3 and GHO

Through the isolation mode, users can generate GHO using a variety of assets supported by the Aave protocol while reducing risk. E-Mode plays a stabilizing role during market fluctuations, allowing users to borrow more GHO during market downturns to repay positions.

The portal feature provides an ideal pathway for GHO's expansion in the multi-chain world. Through the portal, GHO can be distributed across networks in a trustless manner while maintaining the high security established on Ethereum.

Further Applications of Governance

stkAAVE holders can mint GHO at a discounted price, which incentivizes them to protect the Aave protocol. When users create GHO through the Aave protocol and other facilitators, the Aave DAO will earn substantial revenue through fees.

The DAO will also be able to determine the native interest rate of GHO and make adjustments through the governance process. This means that the monetary policy of GHO will be controlled in a decentralized manner by AAVE governance.

Market Applications of GHO

GHO is expected to not only be applicable in the native crypto community but also to expand into more scenarios. Given the low transaction fees and growth trends of Layer2, GHO is poised for widespread application on Layer2.

The community can encourage the development and integration of GHO payment methods through cash rewards and hackathons, targeting both crypto-native users and mainstream users. The focus can be on use cases like payments, leveraging the growth potential of L2.

If the community votes in favor of deploying the protocol, the initial interest rate and discount rate will be proposed, and these parameters can be adjusted through governance. Cross-chain deployment of GHO requires further governance approval.

In the future, OpenZeppelin and PeckShield will conduct a security audit on GHO. The community will also decide whether to provide retroactive rewards to contributors.