Soon a newcomer among stablecoins - Aave changes its tune?

Soon a newcomer among stablecoins – Aave changes its tune?

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

GHO: the new stablecoin signed Aave

Aave is a protocol called lending, that is to say that it proposes to put in relation borrower and saver. 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 fees, which are then redistributed to savers.

Aave is one of the spearheads of DeFi and is constantly innovating. After having developed the concept of flash loans, Aave is now tackling the field of stablecoins.

On July 7, the developers of Aave submitted a new governance proposal : “Aave request for comment”. This proposal for the deployment of a stablecoin specific to the protocol.

On July 7, 2022, the developers of Aave submitted a new governance proposal: the deployment of a protocol-specific stablecoin.
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 mint the GHO against their deposited collateral. The GHO would be backed by a diverse set of crypto-assets chosen at the discretion of users. »

Declaration of Aave

>> Your first stablecoins in a few minutes? Sign up on Binance (affiliate link) <<

The UST: the example of a stablecoin not to follow

There are several types of stablecoins in the crypto ecosystem:

  • The dollar-backed stablecoins knocking and stumbling;
  • The so-called stablecoins “over-collateralized” that 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 in particular lately with the fall of the Terra Luna UST. Since then, interest in this type of stablecoin has largely declined.

For his part, the GHO belongs to the second family of stablecoin, i.e. it is over-collateralized. Therefore, users must deposit other cryptocurrencies to borrow GHO. The value of the cryptos deposited must exceed the value borrowed, to ensure that the system remains solvent. If the value of the collateralized assets were to fall, 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 should not encounter the same setbacks as the defunct UST.

The important role given to the DAO

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

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

For their part, the holders of AAVE tokens will enjoy benefits on this stablecoin. Indeed, users who have staked their AAVE tokens in the Safety Module will have access to a reduction on the borrowing rate.

Now that the project has been presented to the community, it will be submitted to a governance vote which should be published in the coming days. It will then be up to the community of holders of the AAVE token to make its voice heard to determine whether the GHO stablecoin should see the light of day.

In view of the various comments made following the presentation, there is a good chance that the proposal will pass when it is submitted to the governance vote.

After the fall of the UST, the stability of other stablecoins was called into question, regardless of their family. So the giant Circle had to face rumors that his USDC is in danger. Rumors quickly denied by the company.

Does the stablecoin market leave you cold? Start earning bitcoin and cryptocurrencies now. Take the opportunity to support the Journal du Coin with this affiliate link for you register on the Binance platformTHE absolute benchmark in the sector (affiliate link).

Leave a Comment

Your email address will not be published. Required fields are marked *