DeFi lending protocol Aave (AAVE) has seen its community make an important decision this weekend. After a long voting process, the community has decided to approve the creation of a new stablecoin called GHO — a token that will be backed by collateral consisting of a number of other digital currencies.
The community has given the greenlight 🟢 for GHO 👻 The next step is voting on the genesis parameters of GHO, look out for a proposal next week on the governance forum https://t.co/ba4oK50Wb8
— Aave (@AaveAave) July 31, 2022
The results of the vote have revealed that the majority of Aave DAO voters approve of the idea, which led to 99.9% of them voting in favor of the proposal. The proposal itself was submitted by Aave Companies, and voters have pledged around half a million AAVE tokens in total in order to approve the proposal. Now, according to the project’s Twitter announcement, the next step will involve voting on the genesis parameters of GHO, which will emerge in the form of a new proposal at some point this week.
How does it all work?
The idea behind stablecoin is that users will be able to mint it after first depositing a certain amount in cryptocurrencies accepted by the Aave protocol. Then, those who borrow GHO against crypto assets will have the ability to earn interest on the collateral used to mint the coin. Furthermore, Aave will also charge interest on loans taken out in GHO, and the money will go straight to Aave DAO.
As for the deposits that users provide in order to mint the stablecoin — they will have to be larger than the amount that users will receive. In other words, the loans will be over-collateralized. Then, after the users either repay the loan or get liquidated, the amount of GHO that was lent to them will be burned, and thus removed from circulation.
However, stablecoin will not become available right away. Getting the community’s approval was the easier part of its introduction, and now, it will take some time for the implementation. The reason for this is the fact that the token is being implemented using the AIP (Aave Improvement Protocol), which is under the direct supervision of the project’s DAO.
Aave community supports the idea
As mentioned, the proposal was met with overwhelming approval. The vote took place over the span of three days, with the price of AAVE skyrocketing immediately after the voting process was finished and the stablecoin got its approval officially. The Aave price went from $95.40 to $108, and while the AAVE token price saw a correction since then, it is still significantly higher than where it was before.
The stablecoin is also expected to be quite successful, given the success of other such coins in the crypto industry. The stablecoin market’s capitalization is currently sitting above $153 billion, and while the sector is dominated by giants like Tether and USD Coin, there is still plenty of room for GHO to emerge.
One last thing to note is that GHO will be pegged to the USD, and it will be backed by a basket of cryptos that users can already deposit on the platform.
To learn more visit our Investing in Aave guide.