Aave Prepares To Launch GHO Stablecoin

Ethereum users will soon have another decentralized stablecoin option, with Aave Companies, the company that develops the Aave protocol, proposing to deploy the GHO stablecoin on mainnet after a final round of community discussion.

The proposal has received an outpouring of support in Aave’s governance forum, with most participants calling for it to proceed to an official governance vote.

If passed, Aave’s native GHO stablecoin will be launched with a borrowing cap of $100M, and Aave V3 users will be able to mint GHO against their ETH depositsThe new offering is expected to drive increased competition across DeFi borrowing markets and generate additional revenue for the Aave DAO, which will collect 100% of interest payments on GHO borrowing, according to Aave.

AAVE is up over 5% in the past 24 hours.

Crowded Sector

The decision to launch GHO may have been spurred by the successful deployment of Curve Finance’s crvUSD stablecoin, which launched last month and has been well-received by DeFi users.

Curve’s Stablecoin to Support Lido’s stETH

Move allows crvUSD to scale by increasing debt ceiling by 15x.

An additional offering of a robust collateralized stablecoin is expected to benefit decentralized exchange (DEX) trading. DEX volumes have spiked in recent weeks, driven by memecoin trading and regulatory pressure against centralized exchanges.

But this increased DEX volume may attract the attention of authorities given the current climate, according to Fragments Inc, CEO Evan Kuo.

“The market has recently been seeing more DEX activity, and stablecoins are likely to see more regulation,” said Kuo. He added that stablecoins must be capable of surviving black swan events, and “the fact that centralized stablecoins are highly permissioned… places greater emphasis on decentralized stablecoins as a core piece of the future infrastructure.”

Minting and Governance

GHO will introduce Facilitators, which are protocols or entities capable of generating and burning a certain amount of GHO. At launch, there will be two approved facilitators, the Aave V3 Ethereum Pool and the FlashMinter, both of which were approved in previous community votes.

Via the Aave V3 Facilitator, users may deposit ETH as collateral to borrow GHO. Once live, the borrowing rate for this pool will be set at 1.5%, with an initial limit of 100M GHO, and a 30% discount for staked Aave (stkAAVE) holders, as previously voted by the community.

Sophisticated users have the option of FlashMinting. Rather than borrowing assets from a pool, via Flashminting, users can mint and repay GHO in a single transaction.

FlashMinting allows users to mint GHO without collateral, similar to the way that flash loans on other DeFi platforms allow users to borrow a digital asset, but only if the loan is paid back within the same transaction block.

The FlashMinter will initially be loaded with 2M GHO, and feature zero facilitator fees, which Aave expects will further incentivize arbitrage.