Aave DAO Approves Overcollateralized Stablecoin GHO

  • The Aave community has approved the GHO stablecoin.
  • GHO is an overcollateralized stablecoin that allows users to earn interest on the collateral used to mint the stablecoin.
  • The GHO stablecoin would make borrowing on Aave more competitive.

The Aave DAO has approved a new stablecoin that the platform is looking to launch. Nearly 100% of all voters supported the release of the GHO stablecoin on the Aave protocol, allowing users to mint GHO against their supplied collaterals.  

The overcollateralized stablecoin will still allow users to earn interest on the collateral used to mint the stablecoin. There will also be interest on the loan tokens taken out in GHO, with fees being redirected to the Aave DAO. The summary of the proposal reads,

“GHO can be minted by users against a diversified set of crypto-assets. Borrowers of GHO will continue earning interest on the underlying supplied collateral, just as in all other borrow transactions on the Aave Protocol.”

This preliminary snapshot focused on gaining the approval for the GHO stablecoin, whitelisting the Aave V2 Ethereum Market as the first facilitator for GHO, and signaling community approval to start a discussion around the starting parameters.

The proposal for the starting parameters will begin next week. Aave said over Twitter that there would be a proposal on the governance forum next week.

Aave first submitted the proposal for the native decentralized stablecoin in early July 2022. The stablecoin would make borrowing on Aave more competitive. News of the GHO stablecoin sent the price of the AAVE token up by 13%, and the approval should have a similar effect.

GHO launch bumps up the price of AAVE
AAVE Price: TradingView

Stablecoins, a Hot Subject in Crypto

Stablecoins were always considered a cornerstone of the crypto market, and the impact it has had on DeFi and elsewhere is remarkable. However, the niche has not come without risks, as the recent TerraUSD crash will attest to.

Arcane Research has said that the total stablecoin supply is down by $35 billion. This is an 18.8% drop over the last quarter and is the largest supply drop in stablecoin history. The drop is unsurprising, given the rough times the market has just gone through.

Meanwhile, regulators are gearing up to regulate stablecoins, which they see as having a lot of risk. The United Kingdom introduced a new bill to regulate stablecoins, and many other countries are doing the same. The European Central Bank recommended urgent stablecoin regulation in the wake of the TerraUSD crash.

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