The Aave DAO (Decentralised Autonomous Organisation) has approved the creation of a yield-generation stablecoin called GHO.
Aave is one of the most popular crypto lending protocols. Initially launched in the Ethereum ecosystem, it also supports other layer-1 networks such as Avalanche and Fantom.
GHO to be Heavily Backed
As per a July 31 announcement, the GHO proposal was submitted by Aave Companies, an organisation of developers supporting the Aave protocol. The Aave DAO voted 99.9 percent in favour of the creation of GHO, which will be reportedly backed by a basket of cryptocurrencies:
Users keen to mint GHO will have to allocate collaterals exceeding the amount of GHO they want to mint, all while earning interest on the underlying stablecoin. In other words, users have to allocate an overcollateralised supply in order to mint the GHO.
Shortly after the Aave DAO approval was announced, user activity on the Aave network rose to a new 2022 high:
Not Your Average Stablecoin
GHO differs from algorithmic stablecoins, whose business model solely relies on two key factors to maintain parity with a fiat currency: algorithmic mechanisms and the supply and demand of investors. But they are not really backed by any kind of reserves.
Terra was the most popular algorithmic stablecoin that stormed the market throughout 2021 and early 2022. After the protocol crumbled in May, wiping over US$60 billion from the market and spreading contagion to other stablecoin protocols, Terra launched Terra 2.0 in a bid to revive the ecosystem.
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