Today, the Aave DAO community will begin voting on whether to deploy the much-awaited GHO (GHO) U.S. dollar-pegged stablecoin on the Ethereum blockchain. GHO, an algorithmic stablecoin, can be minted by users against a diversified set of crypto assets. 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.
GHO has been available on the Ethereum blockchain’s Goerli testnet since February, and has functioned without encountering any major bugs. Developer Aave Companies proposed the V3 Ethereum Facilitator – to allow for GHO lending against collateral deposits – and the FlashMinter Facilitator – a variant of flash loans, or loans that are issued against zero collateral. After launch, Aave will allow users to mint GHO tokens against their supplied collaterals. GHO would be backed by a basket of cryptocurrencies chosen at the users’ discretion, while borrowers would continue earning interest on their underlying collateral.
GHO would work similar to other algorithmic stablecoins, which mint exactly $1 worth of tokens when users provide $1 worth of cryptocurrency. In GHO’s case, a user must supply collateral (at a specific collateral ratio) to be able to mint GHO. Correspondingly, when a user repays a borrow position (or is liquidated), the GHO protocol burns that user’s GHO.