Ethereum To Become Home For Aave's GHO: Are Other Stablecoins At Risk?

Aave Companies, one of the primary contributors to the Aave AAVE/USD decentralized finance (DeFi) lending protocol, wants to initiate the decentralized stablecoin GHO as an ERC-20 token on the Ethereum mainnet.

Introducing GHO by means of Facilitators enables users of the third version of Aave to create GHO using their collateral, as detailed in the Aave Improvement Proposal, The Block reported.

If the proposal was accepted, additional revenue would be generated for the Decentralized Autonomous Organization (DAO).

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“If approved, the introduction of GHO would make stablecoin borrowing on the Aave Protocol more competitive and generate additional revenue for the Aave DAO by providing to the DAO treasury 100% of the interest payments made on GHO borrows," Aave stated.

It also added that the Aave DAO would have the power to tweak the interest rate of GHO through decentralized governance.

The proposal is currently under review. Voting is scheduled to start later today and conclude on July 14.

The proposed initiation follows extensive dialogues within the community, numerous phases of governance, and several months of testing on Ethereum's Goerli testnet.

How Does GHO Operate?

Facilitators are used to produce and extinguish GHO tokens.This proposal merges two previously accepted Facilitators - the Aave V3 Ethereum Pool Facilitator and the FlashMinter Facilitator.

The Aave V3 Ethereum Pool Facilitator will permit users to borrow GHO against the collateral placed in the V3 Ethereum mainnet pool.

The FlashMinter Facilitator allows users to flash mint GHO without collateral, as long as it is repaid in a single transaction, which improves GHO's capacity to keep its peg through effective arbitrage.

Included in the proposal is a strategy to utilize Staked Aave (stkAAVE) tokens to decrease the borrowing costs for GHO stablecoin users.

One version of the Aave token that has been staked is stkAAVE.

In addition to the proposed GHO launch on Ethereum, Aave Companies is contemplating a multi-chain approach.

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