Aave’s new stablecoin GHO & ETH’s value as Ethereum scales

Ahoy from Nashville! My family and I have relocated down south, still unpacking and adjusting to this heat, but grateful for the additional space.

A programming note: Dose of DeFi will be off for the summer and returning in September.

– Chris

A big announcement from Aave today that they are launching a new stablecoin, GHO, which as Austin from Shipyard crew points out, can now only be minted and burned by the Aave lending protocol, but in the future other “facilitators” could also generate GHO. This would open the door for other ways to back GHO in the future, like real-world assets or market neutral positions.

Aave is the second largest DeFi platform according to DeFi Llama in terms of TVL with $6.2bn in TVL and it is going squarely after the largest DeFi protocol: MakerDAO ($7.6bn). The move is a no-brainer for Aave, considering the protocol already has the risk management & infrastructure to manage on-chain liquidations. Aave has long been aggressive on the product front. It was the first lending protocol to brand “flash loans” and the first to accept Uni v2 LP tokens as collateral. It has also had less fruitful efforts to expand into uncollateralized lending and the institutional market.

The question many are asking: what about Compound? It previously sketched out a stablecoin (CASH), but that was planned for the unreleased Compound Gateway. Gateway was supposed to be its own standalone app chain, but development has been indefinitely paused (substrate limitations reportedly). The focus on Gateway came at the expense of Compound’s multi-chain strategy. It’s still only on Ethereum mainnet. Aave, in contrast, has successful deployments on Polygon, Avalanche, Arbitrum, Optimism among others.

Compound is looking to catch up. Just last week, it released the code for Compound III, “a version of the Compound protocol that can be deployed and run on all EVM compatible chains”. It is reportedly more gas efficient to mint/burn cTokens, while also enabling isolated collateral. Given it is playing catchup, Compound will need a go-to market strategy. Might Compound resurrect its shelved stablecoin CASH? And how will MakerDAO respond? Presumably it will shut of the Direct Deposit Module (D3M)?

Other: Ryan Watkins explains, “All about cost of capital. You either pay depositors to source stablecoin liquidity or you mint it yourself (for cheaper),” while ChainLink God wonders if Curve will create its own stablecoin and Austin wonders if dYdX could replicate the UXD model.

The Epicenter host and cancer survivor providing fresh perspective on how E TH value accrual will change as blockchains scale. Mehrer speculates that once the L2 universe is built out, ETH will suffer the same fate as ATOM, the original Cosmos hub that “ATOM stagnates, while Terra (and now Osmosis) became new centers.”

There are some good technical responses from Vitalik and Martin Köppelmann that go over our head. The big question is how dapps will be built and…