DeFi protocol AAVE submits a proposal to create its native, collateral-backed stablecoin called GHO, which will be pegged to the USD. Aave Companies, the firm behind AAVE, submitted the proposal for its decentralized stablecoin. The announcement was made by AAVE in its recent blog.
AAVE will allow users to mint GHO against their collateral
AAVE stated that the stablecoin would be backed by several cryptocurrency assets that could be selected by the community of users. AAVE users can utilize the assets they have provided as collateral to mint the stablecoin. The assets will also generate yields during the time they are stored as collateral.
GHO will be a decentralized stablecoin deployed on the Ethereum mainnet. For users to borrow GHO, they should provide collateral at a particular ratio to mint it. When a user repays the borrowed position, the GHO of the user will be burned by the protocol.
Instead of the customary reserve factor that is taken into account when users borrow other assets, all interest payments made by GHO minters would be immediately deposited to the AaveDAO treasury.
The proposal has also put forward a concept called “facilitators.” This proposal, if approved, will allow the generating and burning of GHO tokens trustlessly. AaveDAAO will determine the borrowing rates for GHO. It will be set according to the market conditions.
The AAVE team envisions greater adoption of GHO inside and outside of the crypto community. As stated by the team, GHO will also have low transaction fees on L2s.
In a nutshell, GHO will be decentralized and also over-collateralized by different assets. It will be backed by multiple types of collateral that will be available on the Aave protocol.
The proposal will be determined by a snapshot that decides the fate of the GHO and whether to move forward with the GHO.