On Sunday, the non-custodial liquidity protocol Aave proclaimed that its DAO had approved the launch of a new stablecoin called GHO.
In early July, Aave Companies floated the proposal to create a collateral-backed stablecoin pegged to the US dollar. An overwhelming 99% of the members have voted in favor of the proposal and pledged half a million AAVE to make it possible.
“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 company wrote in a blog post introducing the stablecoin.
People interested in minting GHO will have to deposit cryptos accepted by Aave in excess of the value of GHO they receive to ensure loans are over-collateralized, and those who borrow GHO will be eligible for interest payments on the underlying collateral.
“When a user repays a borrow position (or is liquidated), the GHO protocol burns that user’s GHO. All the interest payments accrued by minters of GHO would be directly transferred to the Aave DAO treasury; rather than the standard reserve factor collected when users borrow other assets,”
explained the DAO.
Aave believes that the use of stablecoins would only grow as more non-native crypto participants join the community. GHO, with its multi-collateral model, can be a significant player in the coming years.
The stablecoin market capitalization currently stands at $153 billion, with Tether’s USDT ($66 B) and Circle’s USDC ($54 B) leading the pack, according to Coinmarketcap data.
Following the news, AAVE went up to around $108 from $96. At the time of writing, it is trading at $99.