Leading decentralized finance (DeFi) protocol AAVE has announced that its community has greenlit the proposal to launch GHO—an overcollateralized stablecoin for the AAVE ecosystem.
GHO Proposal Passes
Aave has announced that the proposal to launch the GHO stablecoin, which was put to community vote on July 28th until July 31st, 2022, was passed in favor. Aave tweeted:
The proposal saw 99.9% of voters express support for the launch of the stablecoin. The Aave community staked over 501k AAVE tokens in favor of approving the proposal to create GHO, while just 12 AAVE was staked in opposition.
The Overcollateralized GHO Stablecoin
The GHO decentralized stablecoin will be built on the Ethereum network and pegged to the U.S. Dollar. Additionally, the stablecoin will be backed via collateral consisting of other cryptocurrencies.
According to the AAVE proposal, in order for a user to mint GHO, they must first supply collateral, meeting a specified collateral ratio. Furthermore, the minted GHO must be overcollateralized at every stage.
AAVE intends to charge interest on loans taken out in GHO. In this way, the GHO tokens minted by a given user are burned once that user repays a borrow position, or in the event that it is liquidated.
On the Flipside
- Stablecoins face mounting pressure as scrutiny intensified once more following the recent de-pegging of Solana-based stablecoin Nirvana (NIRV).
Why You Should Care
By proposing an overcollateralized stablecoin, AAVE is looking to avoid the pitfalls that led to the collapse of TerraUSD and that currently plague other collateralized stablecoins.
For additional information on how GHO will function, read:
Find out more about the recent collapse of Nirvana: