Aave Stablecoin Expected to Boost Revenue
Aave, the largest decentralized lending protocol, is expected to launch on Friday the latest version of its software on Ethereum, a move that will pave the way for its stablecoin, GHO.
AAVE token holders must approve the move in a vote that ends Wednesday at 5 p.m. New York time, though the measure is expected to pass. Fewer than a tenth of one percent of votes cast were in opposition on Tuesday evening.
In an interview with The Defiant, Aave founder Stani Kuchelov said GHO would be released “in weeks,” but declined to get more specific. While GHO is widely anticipated and expected to provide a substantial boost to Aave revenue in the coming years, it’s just one of several benefits promised in the protocol’s latest software release.
The software, dubbed V3, has existed on other blockchains for almost a year. With more than $5.5B in total value locked, Aave’s lending pool on Ethereum is by far its largest. Kuchelov expects all of the liquidity on Aave’s existing Ethereum lending pools to move to V3 over time, as users take advantage of its improvements in capital efficiency and risk mitigation.
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In the world of decentralized lending, most loans are over-collateralized — the value of the collateral used to take out a crypto loan is greater than the value of the borrowed crypto. This protects the borrower from going into the red should their collateral drop in value, a real possibility in the volatile world of digital assets.
An “efficiency mode” in V3 will offer a better loan-to-value ratio when borrowing assets correlated with their collateral, such as pairs of stablecoins, or Ether and its liquid staking derivatives.
“It actually enables a very efficient way to do [foreign exchange] trading,” Kuchelov said, such as borrowing Euro-pegged stablecoins against dollar-pegged stablecoins to take long or short positions on the market. “There’s a lot of volume of FX trading, and obviously that volume could actually be on-chain. … That’s something that we’re betting on quite a lot.”
Another feature, “portal,” will allow users to move liquidity across Aave’s several blockchains, by allowing them to mint unbacked assets in a “destination chain,” and then back them later through the liquidity that you have on your source network, according to Kuchelov.
“Most of the value is stored, more or less, in lending protocols,” he said. “That’s the best place to transfer value between networks.”
Regarding safety, V3 will allow users to lend and borrow a wider range of tokens, with risk mitigation features meant to protect the wider protocol from the volatility of less liquid assets.
Those and other safety features will allow GHO to better hold its peg than it could on V2, Kuchelov said.
The founder expects token holders to approve V3 deployment, given its history on other blockchains, such as Arbitrum, Optimism and Polygon.
“It’s battle-tested,” he said. “V3 is pretty much[an evolution of the previous version … [a] state of the art liquidity protocol.”
Aave was down 8% in the preceding 24 hours early Wednesday morning, according to data from The Defiant Terminal.
ETH Price + AAVE Price, Source: The Defiant Terminal
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