back to Aave .’s decentralized stablecoin “Gho”

The Aave protocol presented its stablecoin project “Gho”, which would be pegged to the dollar and backed by a range of cryptocurrencies. How will it work? BFM Crypto takes stock.

The Aave protocol is making its mark in the world of decentralized finance (DeFi). Despite the crypto crash that has weakened some stablecoins – such as the US of the terra blockchain – Aave believes stablecoins have a bright future ahead of them.

On Thursday, the company revealed the outline of its decentralized stablecoin called “Gho” (the project of which is detailed here). This dollar-pegged stablecoin would be backed by a range of cryptocurrencies and its stability would depend on six “facilitators”.

As a reminder, a stablecoin (or stable cryptocurrency) is a crypto asset (or digital asset) linked to a fiduciary currency such as the euro or the dollar. A stablecoin can also be backed by other assets (such as gold). This is called the underlying value of the stablecoin.

When the price of the underlying asset goes up or down, the value of the stablecoin must match. The promise is to hold the parity permanently, e.g. 1 USCD = 1 dollar. This peg to a currency is also known as a “peg”. When there is a gap between the value of the underlying asset and that of the stablecoin, it is called a “de-peg” or “loss of parity”.

Before going into the details of this “Gho” stablecoin project, let’s go back to how the Aave protocol works.

How Aave works

Founded in 2017, Aave is a platform that specializes in cryptocurrency lending and borrowing within DeFi, thus serving both lenders and borrowers. Specifically, the “borrowers” provide liquidity to the protocol and earn interest in return. They can also receive aave tokens or ‘atoken’, the token associated with the Aave protocol.

For their part, “borrowers” can take out loans by depositing cryptocurrencies as collateral (also known as “collateral”). They can therefore borrow cryptocurrencies without having to sell their cryptocurrencies.

This protocol is distinct from Celsius or BlockFi type lending platforms which, by holding/managing their clients’ cryptocurrencies, fall within the realm of so-called “centralized” financing. This is where money from Aave customers is deposited into smart contracts.

“The smart contract code is public, open source, formally verified and audited by third-party auditors. You can withdraw your funds from the pool on demand or export a tokenized version of your lender position,” the site reads. †

Since its inception, the protocol has grown to the point that, according to data from benchmark site Defi Llama, it is the first decentralized financial protocol, with $9.47 billion worth of cryptocurrencies on the same protocol.

What is Aave’s “Gho” stablecoin?

On Thursday, therefore, the protocol announced on Twitter its stablecoin project, called Gho, and invited its community to vote on its operation.

“The gho would be backed by a diverse array of crypto assets chosen at the discretion of users, while borrowers would continue to earn interest on their underlying collateral,” the protocol outlines.

If the cryptocurrencies that would support the gho are not specified, they could be the cryptocurrencies already present in the Aave protocol, such as ether, polygon or even avalanche.

If accepted, this project could make stablecoin borrowing on Aave “more competitive”, give users more leeway in this sector and generate “extra revenue”, according to the protocol.

Notably, this stablecoin would be generated by borrowers in exchange for over-securing their debt.

“That is, we come to deposit cryptocurrencies as collateral, for a value greater than what we want to borrow. As with any debt, the gho will pay interest. This interest will then be donated in full to the treasury of the decentralized autonomous organization (DAO)”, specifies the Cryptoast media.

In particular, for this stablecoin to be “stable”, it will depend on “facilitators”, a concept introduced by Aave, which can relate to an entity. Six facilitators were named in the protocol, including Aave of Credit Score. Specifically, a facilitator will make it possible to stabilize the stablecoin, either by burning (deleting) tokens, or by generating new tokens in the market, which will allow to maintain a certain stability if it goes below or above the dollar, to which it is indexed.

“This project could revolutionize the ecosystem”

“It is the first time we see such a complex stablecoin: it feels like we have multiple layers in this stablecoin. This stablecoin is supported by facilitators who generate different revenues and behind that we have a governance system that allows voting on the operation of this stablecoin.For example, the DAO will be able to cast different votes.For example, one may wonder whether it is necessary to add a facilitator or not, in the same way, the DAO plans to launch a Gho airdrop to do to Aaveholders?” confides BFM Crypto Marouane Essaïdi, digital asset manager at TheDiggers.

The goal, for Aave, appears to be enabling the adoption of this stablecoin that could go beyond decentralized finance.

This stablecoin “provides a level of security and decentralization that is inclusive for crypto-native users, while employing a growth strategy that emphasizes the use cases for a growing mainstream audience. This strategy should focus on use cases such as payments.” ,” the protocol contours.

“This project could revolutionize the ecosystem. We have a mix of many decentralized financial instruments. If it works, many projects will be inspired in this way for other tokens. To see what it can give in a more global system” , says Marouane Essaidi.

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