- Aave has launched a GHO on the Ethereum mainnet.
- The stablecoin takes a leave from DAI’s playbook with some key differences.
- This article deeply delves into GHO’s stablecoin model and how it differs from the competition.
Decentralized stablecoins are gaining popularity among core decentralized finance (DeFi) enthusiasts as the censorship concerns associated with centralized alternatives grow.
As this interest grows, several DeFi protocols have opted to launch decentralized stablecoins, with Aave being the latest to join the fray. The popular Ethereum lending protocol has launched GHO, a protocol native stablecoin, after a year of development.
What Is GHO?
In a Twitter thread on Saturday, July 15, Aave announced that GHO had launched on the Ethereum mainnet. GHO is an overcollateralized decentralized dollar-pegged stablecoin for the Aave protocol.
While standard centralized collateralized stablecoins, like Circle’s USDC, maintain 1:1 fiat reserves for each token in circulation, overcollateralized assets like GHO maintain reserves in several other crypto assets, with the reserve’s value exceeding the stablecoin’s value in circulation to account for market volatility.
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GHO’s mechanics and policies are fixed in self-executing smart contracts. Consequently, they cannot be changed by a centralized entity. The stablecoin’s underlying mechanisms can only be changed through a vote by the Aave decentralized autonomous organization (DAO), which serves as the GHO’s governing body.
While relying on smart contracts, like the failed TerraUSD, it is worth noting that GHO’s reserve system and minting mechanism widely differ and are more similar to MakerDAO’s DAI.
How GHO Is Minted
According to the team, GHO can only be minted by approved facilitators governed by Aave DAO. These facilitators will be limited to minting a set amount of the stablecoin agreed upon by the DAO.
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At the time of writing, the Aave DAO has approved two facilitators. These facilitators include the Aave V3 protocol and the Flashminting facilitator.
With Aave V3, users can mint GHO with any asset collateral in the lending protocol. The facilitator boasts an initial mint capacity of $100 million. On the other hand, Aave did not reveal much about the Flashminting facilitator and did not immediately respond to a request for comment.
Despite the similarities, Aave has tried to differentiate GHO from the competition.
Why GHO Is Unique
According to the Aave team, GHO differs from decentralized stablecoin offerings like DAI for several reasons. Firstly, users who mint GHO using the Aave V3 protocol still earn yields on their collateral deposits, reducing the cost of borrowing GHO over time.
At the same time, Aave revealed that users who stake AAVE, the lending protocol’s native token, could mint GHO at a discounted rate. Aave also plans to send interest paid on borrowed GHO to the Aave DAO treasury.
According to data from the official website, users have minted about 2.59 million GHO since its launch. It represents a negligible fraction of the $128 billion stablecoin market at this early stage.
On the Flipside
- The robustness of GHO’s model can only be tested with time.
- Decentralized stablecoins frequently trade slightly below their peak. For instance, GHO is trading at $0.988 per data from CoinMarketCap at the time of writing.
Why This Matters
Aave is the second-largest DeFi protocol by total value locked (TVL). Stablecoins typically lead to increased capital inflows which could further fuel the protocol’s growth.
Read this to learn about a $10 million exploit that recently rocked the Aave protocol:
Aave Suffers Flash Loan Exploit, $10M Drained
Learn more about Base’s mainnet launch:
Coinbase Base Grants Builders First-Hand Access to New Layer-2
