Aave plans to launch a decentralized stablecoin GHO

The Aave protocol is considering launching a native decentralized dollar stablecoin called GHO. This proposal aims to gather feedback and support from the community.

The main features of GHO include:

• Complete Decentralization
• Over-collateralized by assets that continuously generate returns
• Various collateral backed by the Aave protocol
• Governed by the Aave community

If the proposal is approved, users will be able to mint GHO on the Aave protocol, and the collateral can be various crypto assets. Borrowers can continue to earn interest on their collateral, while all decisions related to GHO will be managed by Aave governance.

The introduction of GHO will make stablecoin lending on the Aave protocol more competitive, providing users with more options. The interest generated from GHO lending will be entirely owned by the DAO, bringing additional revenue to the Aave DAO.

The current market value of stablecoins is approximately $150 billion, making them an important component of the cryptocurrency space. Stablecoins provide a fast, efficient, and borderless way of transferring value. Decentralized stablecoins also enhance transparency and resistance to censorship, which aligns with the principles of Web3. As crypto assets further integrate with traditional users, the adoption of stablecoins is expected to continue to grow.

The Operating Mechanism of GHO

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

GHO introduces the concept of "facilitators". Facilitators can generate and destroy GHO tokens without trust, but must obtain approval from Aave governance. Each facilitator has a "bucket" that represents their maximum GHO generation limit.

Once effective, this proposal will activate the first facilitator, namely the AAVE market on Ethereum. The governance department will decide the bucket capacity allocated to this facilitator to guide the liquidity and market of GHO.

Integration of Aave and GHO

The Aave-GHO integration will adopt the same mechanisms as other assets in the Aave protocol, deploying specific GHO aTokens and GHO debt tokens. These tokens can be registered as GHO tokens in the Aave Ethereum market.

GHO's Interest Rate and Discount Model

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

GHO will also introduce a discount strategy mechanism. In the initial deployment, participants in the security module, (stkAAVE holders ) can receive discounts on GHO borrowing rates. The discount ranges from 0% to 100%, with specific parameters controlled by Aave governance.

The Synergy of Aave V3 and GHO

Through isolation mode, users can generate GHO using multiple assets while reducing risk. 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 provides an ideal path for the expansion of GHO in a multi-chain world, allowing GHO to be distributed across different networks through simple messaging without the use of bridges, thereby reducing risk.

Further Applications of Governance

stkAAVE holders can mint GHO at a discounted price, incentivizing them to protect the Aave protocol. When users create GHO through the Aave protocol, the Aave DAO earns revenue through fees. This revenue can be used for innovation, supporting ecosystem contributors, or other DAO decision-making purposes.

The DAO will 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 suitable for the crypto community but also to expand into more scenarios. Given the low transaction fees and growth trends of Layer 2, GHO is expected to be widely used on Layer 2. Development of GHO payment methods can be encouraged through rewards and hackathons, targeting both crypto-native and mainstream users.

GHO will provide users with security and Decentralization, while adopting a growth strategy to develop mainstream use cases. This strategy will focus on applications such as payments, leveraging the growth potential of L2. Rewards and hackathons determined by Aave Grants DAO will drive the construction of these mainstream use cases.

If the community votes to support the deployment of GHO, it will propose the initial interest rate and discount rate, which can be adjusted through governance. In the future, the community will also decide whether to provide retroactive bonuses to contributors.

Before the official launch, OpenZeppelin and PeckShield will conduct a comprehensive audit of GHO to ensure its security and reliability.