Aave, one of the largest DeFi protocols in the crypto space, has deployed its native stablecoin, GHO, on Ethereum’s Goerli testnet.
Developers and potential GHO adopters can access the stablecoin’s codebase and test how it works before releasing it to the wider public on the Ethereum blockchain.
The launch of the GHO mainnet is subject to community discussion and approval.
Aave is a lending platform that allows users to make cryptocurrency loans or earn interest on tokens using smart contracts without third-party oversight. It is managed by Aave DAO, a decentralized autonomous organization, through community recommendation and voting.
The protocol’s native stablecoin has been highly anticipated by DeFi users since the community strongly supported its development in a governance vote last August.
Stablecoins are a new group of cryptocurrencies whose value is backed by external assets and designed to maintain a price pegged to one currency, primarily the U.S. dollar. The asset layer serves as the mainstay of the crypto ecosystem by facilitating transactions and transfers between traditional currencies and digital assets. It has grown to a total market capitalization of $136 billion.
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Aave’s GHO will face stiff competition as rival DeFi protocols collapse or are creating their own native stablecoins as a means of attracting users at the time. Cryptocurrency lending is struggling. Currently, DeFi Maker’s DAI is the largest decentralized stablecoin with $5 billion in circulation, while another leading protocol, Curve, is planning to launch its native stablecoin, crvUSD.
However, Aave’s leading position in the DeFi space and the $7 billion worth of digital assets promised on the platform may put its stablecoin in the lead.
“In my opinion, GHO will soon become the leading decentralized stablecoin after DAI,” said Dustin Teander, an analyst at crypto intelligence firm Messari. “However, given DeFi’s current low debt demand, it may take a while to see significant expansion.”
How Aave’s GHO Works
According to a technical paper by Emilio Frangella and Steven Valeri of Aave Companies, GHO will be an over-collateralized stablecoin backed by crypto assets. Its price will be determined by the $1 oracle.
The supply of GHO is controlled through a minting and burning mechanism. When users deposit digital assets as collateral to borrow GHO, Aave generates (mints) GHO while they continue to earn interest on their underlying assets.
When the user repays the principal, Aave will destroy (burn) the previously issued GHO to reduce the flow and return the underlying collateral.
Contributors to the protocol’s AAVE governance token can borrow GHO at a discount.
Aave DAO will be responsible for determining the token supply, interest and risk parameters. The DAO will charge all interest charges during the GHO loan period, which is clearly different from all other digital assets borrowed and lent on Aave.
GHO will rely on facilitators, such as other DeFi protocols, who will be able to reliably mint and burn GHO. They must be approved by Aave’s board of directors and subject to so-called barrel lending limits.
Prior to the testnet launch, the GHO implementation was audited by blockchain code auditing firms Open Zeppelin, SigmaPrime, ABDK, and is currently being audited by Certora. The protocol also launched a Bug Bounty program that incentivizes community members to discover and report security vulnerabilities for rewards of up to $250,000.
At the time of writing, the AAVE native token is down around 2% and is trading at $87.22.
Source: TradingView
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According to CoinDesk
