Aave Companies, the firm overseeing the decentralized lending protocol Aave (AAVE), has released a technical paper describing new details about its much-anticipated GHO stablecoin.
GHO is an overcollateralized and decentralized stablecoin pegged to the US dollar and backed by a diversified set of crypto assets that are already available to be deposited on Aave.
The paper explains that GHO will be minted and burned by other protocols or entities called Facilitators. Each Facilitator is given a Bucket, which represents the upper limit of how much GHO can be minted per entity. The total supply of GHO will be determined by combining all existing Buckets.
Different Facilitators will have the ability to employ different minting strategies. Aave will be the first Facilitator to mint and burn GHO. It will list the token on its platform where users will be able to lend and borrow against it. Once a user repays their GHO loan or is liquidated, interest accrues to the Aave DAO treasury.
Moreover, users staking AAVE tokens will be able to borrow GHO at a discounted interest rate. GHO will also not use price oracles to determine its price and instead will rely on arbitrage.
The firm also shared that OpenZeppelin, a leading blockchain security company, conducted the first-ever GHO audit. The auditor didn’t report any major findings. Aave Companies expects to start experimenting with the first testnet deployment in the coming weeks.
Aave is the fourth largest decentralized finance platform with over $5 billion in total value locked (TVL), according to data from DefiLlama.
On the Flipside
- It’s unclear when GHO is going to launch;
- GHO is entering an already saturated stablecoin market led by USDT, USDC, BUSD, and DAI.
Why You Should Care
The stablecoin market is dominated by centralized entities like Tether, Circle, and Binance. Aave’s efforts to introduce a decentralized stablecoin competitor to Maker’s DAI could spark a new era of decentralized stablecoins, especially in an increasingly regulated environment.
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