Overcollateralized stablecoin approval by Aave DAO divides the crypto community

The creation of the overcollateralized stablecoin GHO was approved almost unanimously by the Aave DAO, the governing body that oversees the decentralized finance (DeFi) behemoth Aave.

On July 28, the Aave firm posted a proposal for the creation of the GHO, and over the course of three days, the community overwhelmingly approved it with 99.9% of the vote.

501,000 AAVE tokens were pledged in favor of developing the crypto-collateral backed stablecoin as of the proposal's closing time on July 31 at 10:00 AM GMT.

GHO would be a stablecoin based on Ethereum that is decentralized, linked to the dollar, and could be secured using a variety of cryptocurrencies.

Any user wishing to mint GHO may do so by depositing any other crypto asset recognized by the Aave protocol. The GHO will then be created via a new Aave improvement protocol (AIP).

Aave is a decentralized non-custodial lending and borrowing platform for cryptos. It aims to use its overcollateralized stablecoin to provide improved liquidity and passive income opportunities.

Because GHO is an overcollateralized stablecoin, users must always deposit more cryptocurrency than the GHO's initial minting value.

This would guarantee a loan on these stablecoins with excessive collateral. After the user pays back the loan, their position is liquidated, and the GHO they borrowed is burned.

Additionally, interest will be charged by the lending protocol on GHO loans, with payments made to the Aave DAO treasury rather than the typical reserve factor taken when users borrow other assets.

The recent depegged TerraUSD (UST), the stablecoin collapse that destroyed over $40 billion in investor funds, came to mind when Aave announced a crypto-collateralized stablecoin.

It was quickly dismissed by many people as just another stablecoin that would soon be depegged.

However, the future GHO would be overcollateralized similar to DAI, meaning the assets backing the stablecoin will always be of higher value.

The Latest News