Aave Wants to Launch a Rival to MakerDAO’s DAI Stablecoin

Key Takeaways

  • Aave has put forward a governance proposal to launch a decentralized dollar-pegged stablecoin on the Aave Protocol.
  • If accepted by the community, GHO would be available to borrowers who provide collateral and earn interest for the Aave DAO.
  • Stablecoins have come under sharp focus in recent months due to Terra’s UST implosion, but GHO shares more similarities with MakerDAO’s DAI.

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If the community passes the proposal, borrowers will be able to mint GHO by providing collateral on the Aave Protocol. 

Aave Proposes GHO

Aave could become the next major crypto project to launch a stablecoin. 

The leading DeFi protocol put forward a new proposal on the Aave Governance forum Thursday, suggesting the launch of a decentralized, dollar-pegged stablecoin called GHO. 

The proposal suggests creating GHO as a fully collateralized stablecoin on the Aave Protocol. According to the note submitted by Aave, users would be able to supply collateral to mint GHO while earning interest on their underlying collateral. Additionally, if accepted by the community, any interest payments on GHO borrowed would go to the DAO’s treasury. 

“GHO would make stablecoin borrowing on the Aave Protocol more competitive, provide more optionality for stablecoin users and generate additional revenue for the AAVE DAO by sending 100% of interest payments on GHO borrows to the DAO,” the proposal reads. 

In Aave’s plan, GHO would be backed by a range of crypto assets chosen by the user. The amount the user could mint would depend on the amount of collateral deposited. The proposal also suggests that GHO would get burned when users pay back a loan or suffer a liquidation. 

GHO would launch on Ethereum mainnet, with the Aave Protocol acting as the first “facilitator” that can mint and burn the tokens. Any additional facilitators would need to be approved by Aave governance. The proposal also puts forward a plan to launch a GHO aToken and GHO Debt Token. 

Interest rates for the stablecoin would be determined by the community, and the decision on whether to move ahead with the proposal will come down to a vote and snapshot. The voting period has not yet commenced. 

Stablecoins have been in the crypto spotlight in recent months, thanks mainly to Terra’s spectacular blowup in May. The Layer 1 blockchain imploded when its algorithmic stablecoin, UST, lost its peg to the dollar, erasing about $40 billion of value in the space of a week. Other Layer 1 blockchains like TRON have launched their own Terra-inspired stablecoins. However, Aave’s GHO differs from those in that it would be collateralized and minted through a DeFi protocol rather than a Layer 1. In that sense, GHO is more similar to MakerDAO’s DAI, crypto’s biggest decentralized stablecoin. 

The proposal concludes by stating that GHO could gain adoption on Ethereum Layer 2’s low-fee environment. Additionally, it hints at an ambitious plan to help the stablecoin reach an audience outside of the cryptosphere. “GHO will provide a level of security and decentralization that is inclusive for crypto-native users while also using a growth strategy that emphasizes its use cases for a growing mainstream audience,” it said. 

Disclosure: At the time of writing, the author of this piece owned AAVE, ETH, and several other cryptocurrencies. 

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