A Quick Look at Aave's Decentralized Stablecoin GHO Proposal

Original Author: Karen

Last night, Aave issued a Request for Comments (ARC) on the introduction of the stablecoin GHO to the communityproposalproposal

• , GHO, whose name is taken from GHOsts, is a native decentralized multi-collateral stablecoin on Aave, with the following characteristics:

• Decentralized, fully pegged to the US dollar;

• be governed by the community;

• It is allowed to stake a variety of encrypted assets supported by Aave to mint, so GHO is over-collateralized;

Borrowers can continue to earn interest on their collateralized assets, and users can then burn GHO when they recover their collateralized assets.

In addition, 100% of the interest on GHO loans will go to DAO, generating additional income for Aave DAO. If the proposal is approved by the community, OpenZeppelin and PeckShield will conduct several audits in the coming weeks.

How GHO works

As proposed, GHOs are created by users (borrowers), and like all borrowing on the Aave protocol, users must provide collateral (at a specific collateral ratio) in order to mint GHOs. When the user repays or is liquidated, the GHO protocol will destroy the user's GHO. Interest generated by GHO minters will be transferred directly to the AaveDAO treasury.

GHO introduces the concept of a facilitator, a facilitator (eg protocol, entity) has the ability to generate (and burn) GHO tokens without trust. Of course, any facilitators must be approved by Aave governance. Different facilitators will be able to apply different strategies to their GHOs, and there will also be a cap on the amount of GHOs a facilitator can generate, as determined by governance. The cap is set primarily to maintain collateral and reduce risk.

Aave V3 & GHO

After the proposal is passed, the first facilitator is the Aave protocol. Like other assets on Aave, the GHO aToken and GHO debt token will also be deployed after Aave integrates with GHO. In addition, the GHO borrowing rate will be determined by AaveDAO, and the interest rate is a stable currency, but it can also be adjusted according to market conditions. In the initial implementation, stkAAVE holders can mint GHO at a certain discount, and the discount parameter is determined by Aave governance, which means that they will pay a lower interest rate for borrowing GHO, which will incentivize more Aave to pledge to protect the Aave protocol .

In the first quarter of this year, Aave launched V3 on Polygon, Arbitrum, Avalanche, Fantom, Harmony, and Optimism, and it may take several months to deploy on Ethereum. Aave said that the isolation mode, Portal and E-Mode functions in V3 and GHO can be described as "a match made in heaven". In addition, Aave intends to promote the adoption of GHO on Layer2.

Segregated mode in Aave V3 allows users to mint GHO using multiple assets currently supported by the Aave protocol, while maintaining collateral and reducing risk. Additionally, segregated mode also runs DAO governance to control supply and borrow exposure caps.

The portal function (Portal) will drive GHO to expand on multiple chains (no need for a bridge), and support users to seamlessly move assets between Aave V3 markets through different networks. For example, the specific operation is that the user destroys aToken on Ethereum, and then Minted on the target network.

Aave V3 also has an efficient mode Aave V3 "E-Mode", which can maximize capital efficiency and maximize borrowing capacity when the prices of collateral and borrowed assets are correlated, such as DAI, USDC, USDT and GHO Both are USD-pegged stablecoins, so these stablecoins belong to the same E-Mode category. Thanks to E-Mode, stablecoin holders can also access GHO at a near 1:1 ratio with zero slippage.

Aave team member Marc Zeller also pointed out that if the GHO is decoupled, there will be some arbitrage space protection system. If GHO is higher than the peg for any reason, GHO can be minted with another stablecoin and then sold through stablecoin exchange. Aave V3's E-Mode provides users with the operating conditions for such arbitrage. If GHO drags the peg, users can repay the debt, and when more users choose to repay the debt, the total supply of GHO will decrease, thereby helping to restore the peg,