A newcomer to stablecoins soon – Aave changes tone?

A stablecoin to push Aave? – Ave it is one of the most established protocols in the ecosystem Challenge. Always at the forefront of innovation, it almost brings together 6 billion dollars through different instances of the protocol distributed on different blockchains. Now, giant Aave wants to tackle a new part of the crypto economy by creating own stablecoin.

GHO: the new stablecoin by Aave

Ave is a protocol called loan, that is, it proposes to put the borrower and saver in relationship. As a result, savers can deposit cryptocurrency into Aave smart contracts and earn a return. For their part, borrowers can borrow funds in exchange for commissions, which are then redistributed to savers.

Aave is one of DeFi’s spearheads and is constantly innovating. Having developed the concept of a flash loan, Aave is now entering the field of stable coins.

On July 7, Aave’s developers unveiled a new one governance proposal : “Aave request for comment”. This proposal for the distribution of a stablecoin protocol specific.

Stani Kulechov, CEO of Aave, announces the creation of the GHO – Source: Twitter

“With community support, the GHO can be launched on the Aave protocol, allowing users to coin the GHO against their deposited collateral. The GHO would be supported by a diversified set of cryptocurrencies chosen at the discretion of the users. “

Aave statement

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The FSO: the example of a stablecoin not to be followed

There are several types of stablecoins in the crypto ecosystem:

  • The dollar-backed stablecoins knock and stumble;
  • The so-called stablecoins “over-guarantee” which are backed by other cryptocurrencies;
  • Finally, the algorithmic stablecoins which maintain their standard through various mechanisms in the code.

The family of algorithmic stablecoins has been in the news particularly lately with the fall of the Earth Moon UST. Since then, interest in this type of stablecoin has largely waned.

For its part, the GHO belongs to second family of stablecoins, that is, it is over-warranty. Therefore, users have to deposit other cryptocurrencies to borrow GHO. The value of the deposited cryptocurrencies must exceed the borrowed value, to ensure that the system remains solvent. If the value of the secured assets were to decline, the protocol could resell the collateral to repay the loan.

This mechanism allows minimize the risk of insolvency in times of high volatility. Therefore, the GHO is not expected to encounter the same setbacks as the late UST.

The important role assigned to the DAO

The introduction of a protocol-specific stablecoin will allow Aave to diversify its offering once again. In fact, the teams believe its introduction “it will make stablecoin lending on the Aave protocol more competitive”. Furthermore, this will benefit the DAO “generating additional revenue for the DAO Aave by sending 100% interest payments on the GHO loans to the DAO”.

At the same time, the DAO will manage the various parameters of the stablecoin. In practice, this will determine the interest rate for GHO loans, “Which will have to be adapted to market conditions”.

For their part, the holders AAVE tokens will enjoy benefits on this stablecoin. In fact, users who have staking their AAVE tokens in the security module will have access to aa reduction of the borrowing rate.

Now that the project has been presented to the community, it will be subjected to a government vote which should be published in the next days. It will then be up to the community of AAVE token holders to make their voices heard to determine if the GHO stablecoin should see the light of day.

Given the various comments made following the presentation, there is a good chance that the proposal will pass at the time of the governance vote.

After the fall of the FSO, the stability of other stablecoins was questioned, regardless of their family. Hence the giant Circle had to face rumors that its USDC is in jeopardy. Rumors immediately denied by the company.

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