Aave lending protocol proposes Collateralized Stablecoin GHO proposal! Minting mechanism and interest rate model revealed.

The leading decentralized lending protocol Aave launched a proposal for overcollateralized, decentralized stablecoin GHO yesterday. GHO can be generated through multiple assets in the Aave protocol, redeemed, and burned, with the unique concept of Facilitators. This article will explain its mechanism, interest rates, and discount model.

GHO Stablecoin Introduction

According to a governance proposal put forward by the Aave team, the decentralized stablecoin GHO will be created by users who are borrowers. Similar to all borrowing on Aave, users must provide collateral in order to mint GHO. When users repay, the protocol will directly burn the received GHO, and all interest income generated during the minting of GHO will be transferred directly to the AaveDAO treasury.

In order for the GHO system to develop smoothly, Aave has also introduced the concept of Facilitators, who can be protocols, entities, etc., and will have the ability to mint and burn GHO without the need for trust. Any Facilitator must agree through the governance process, and various Facilitators can apply different strategies to their GHO tokens.

In addition, for each Facilitator, the maximum GHO they can mint will be determined through the governance process, known as a Bucket.

If this proposal is approved, the Aave protocol will become the first Facilitator, and after determining the Bucket through governance, will guide the liquidity and market of GHO.

Integration of Aave and GHO

GHO will follow the same mechanism as any other asset listed on the Aave protocol, and both GHO aToken and GHO Debt Tokens will be deployed.

GHO Interest Rates

The borrowing interest rates of GHO will be determined by AaveDAO and adjusted according to market conditions. The interest rate design will retain the flexibility of Aave protocol's borrowing rate model, and any interest rate strategies deemed appropriate by the Aave community may be implemented in the future.

GHO Discount Model

During the initial implementation phase, GHO will include a discount strategy mechanism, where stkAAVE token holders can obtain a discount on GHO borrowing rates based on the amount of AAVE they stake.

Note: The link provides the GHO borrowing rate calculation sheet.

GHO Vision

During a market downturn, the established lending protocol Aave has introduced a new stablecoin vision. The Aave team hopes to expand the use cases of GHO as much as possible and rely on low transaction fees on L2 for widespread adoption. Additionally, Aave will officially upgrade to version V3 in the coming months, which will better enhance the demand for GHO in the V3 version.