MakerDao’s Competitor Aave Protocol To Launch GHO – Decentralized Collateral-Backed Stablecoin Alternative to DAI

1 min read

  • A governance proposal for the Aave Protocol suggests launching a dollar-pegged stablecoin. This new project comes at a time when the stablecoin market is seeing increasing competition.
  • Borrowers who provide collateral for loans will receive interest from the Aave DAO.
  • As Terra’s UST has drawn intense scrutiny in recent months, GHO resembles MakerDAO’s DAI more than Terra’s UST.

In the event the proposal is passed by the community, borrowers can mint GHO using the Aave Protocol.

Decentralized collateral-backed stablecoins are becoming more and more popular, especially in the ecosystem of cryptocurrency traders who want to minimize risk. Types of stablecoins vary, but they all aim at providing some sort of stability. It’s no wonder why: the current cryptocurrency market is volatile and unstable, with prices swinging wildly between highs and lows daily.

As a result, traders could potentially lose a lot if they don’t hedge their bets by trading in multiple currencies or coins at once. Therefore, decentralized stablecoins are emerging as the perfect solution for crypto traders to manage their risk.

Aave’s Rival To DAI

The next major crypto project Ave could launch is a stablecoin. 

DeFi protocol proposed GHO, a dollar-pegged, decentralized stablecoin, at the Aave Governance forum on Thursday. 

As part of the proposal, GHO would be created as a fully collateralized stablecoin on the Aave Protocol.  Additionally, if accepted by the community, any interest payments on GHO borrowed would go to the DAO’s treasury. 

“GHO would make stablecoin borrowing on the Aave Protocol more competitive, provide more optionality for stablecoin users and generate additional revenue for the AAVE DAO by sending 100% of interest payments on GHO borrows to the DAO,” the proposal reads. 

Aave plans to back GHO with a variety of crypto assets. Depositing collateral would determine the amount the user could mint. A liquidation or repayment of a loan would also result in GHO getting burned. 

As the first “facilitator” for minting and burning the tokens, GHO would launch on the Ethereum mainnet. Aave governance would have to approve any additional facilitators. In addition, the proposal proposes launching GHO aTokens and GHO Debt Tokens. 

A vote and snap shot will determine the interest rate for the stablecoin, and the decision on whether to move forward will be made by the community. There has not yet been a start to the voting period. 

In recent months, stablecoins have taken center stage thanks to Terra’s spectacular rise in May. A week after losing its peg to the dollar, Layer 1’s algorithmic stablecoin, UST, collapsed, wiping out about $40 billion of value. A number of Layer 1 blockchains, such as TRON, have launched their own stablecoins inspired by Terra. As opposed to other GHOs, Aave’s is collateralized and minted through a DeFi protocol rather than a Layer 1 protocol. GHO is therefore more like MakerDAO’s DAI, the largest decentralized stablecoin in crypto. 

As a conclusion, the proposal states that GHO could be adopted in Ethereum Layer 2’s low-fee environment. Moreover, it suggests a plan to make the stablecoin more accessible to audiences outside of the cryptosphere. As a result, GHO is expected to provide security and decentralization for crypto-native users while also focusing on use cases for a growing mainstream audience. 

Via this site.

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