Aave is moving forward with the creation of a new stablecoin, to be called GHO, after receiving the positive vote of 99% of the voters in its community.
The proposal, submitted by Aave, found universal support from voters, who pledged half a million AAVE to approve the measure to create GHO, a stable currency backed by collateral consisting of other cryptocurrencies.
What is AAVE?
Aave is a decentralized, custodyless marketplace protocol that allows users to borrow and lend cryptocurrencies.
While providing liquidity in the cryptocurrency market, users can earn passive income from digital assets placed in a smart contract. It is open source and has $9.8 billion in liquidity, according to the Aave website.
How GHO will work
Users who want to “cut” GHO will first have to deposit cryptocurrencies accepted by Aave. People who lend GHO against cryptocurrency assets will still earn interest from the underlying collateral (i.e. the cryptocurrencies they deposit as collateral) used to “cut” the stablecoin. The lending protocol will also charge interest on loans to GHOs, with the payments going back to the Aave DAO.
The deposits that users use to “cut” GHO should be greater than the value of the stablecoin they receive, which means that the loans will be over-collateralized. When users repay a loan position or liquidate, the loan to GHO will be “burned” by the protocol.
Although the measure was approved, the introduction of GHO will take time as it will be implemented via an Aave Improvement Protocol (AIP), with the Aave DAO being responsible for overseeing the distribution of the stablecoin once it has been verified as created.
The vote lasted a total of three days and the price of AAVE – the native currency of the lending platform – soared immediately after the proposal was approved.
GHO will be pegged to the US dollar and backed by a mix of cryptocurrencies that users can already deposit on the platform. The interest rate of the stablecoin will be set by the Aave DAO.