back to the decentralized stablecoin “Gho” from Aave

The Aave protocol presented its stablecoin project “Gho”, which would be pegged to the dollar and backed by a set of cryptocurrencies. How will it work? BFM Crypto makes status.

The Aave protocol makes its mark in the world of decentralized finance (DeFi). Despite the cryptocurrency crash, which has weakened some stack coins – such as the ust of the terra blockchain – Aave believes that stack coins still have a bright future ahead of them.

On Thursday, the company unveiled the contours of its decentralized stablecoin called “Gho” (whose project is detailed here). This stablecoin, pegged to the dollar, will be supported by a set of cryptocurrencies and its stability will depend on six “facilitators”.

As a reminder, a stablecoin (or stable cryptocurrency) is a cryptocurrency (or digital asset) linked to a financial currency such as the euro or the dollar. A stack coin can also be backed by other assets (such as gold). This is called the underlying stablecoin.

When the price of the underlying goes up or down, the value of the stablecoin must match it. The promise is to permanently keep the parity, for example 1 USCD = 1 dollar. This binding to a currency is also called a “point”. When there is a gap between the value of the underlying and the value of the stack coin, it is called a “de-peg” or “parity loss”.

Before we go into the details of this “Gho” stablecoin project, let’s first go back to how the Aave protocol works.

This is how Aave works

Aave was founded in 2017 and is a platform specializing in cryptocurrency lending and lending within DeFi, thus serving both lenders and borrowers. Specifically, the “lenders” provide liquidity to the protocol and earn interest in exchange. They can also receive aave tokens or ‘atoken’, the token associated with the Aave protocol.

For their part, “borrowers” can take out loans by depositing cryptocurrencies as collateral (also called “collateral”). They can therefore borrow cryptocurrencies without having to sell their cryptocurrencies.

This protocol must be separated from loan platforms of the Celsius or BlockFi type, which by retaining / managing their customers’ cryptocurrencies fall within the field of so-called “centralized” financing. Funds from Aave customers are invested in smart contracts.

“The smart contract code is public, open source, formally verified and audited by third party auditors. You can withdraw your money from the pool upon request or export a tokenized version of your lender position,” the website states. .

Since its inception, the protocol has grown to the point that, according to data from benchmark site Defi Llama, it is the first decentralized financial protocol with $ 9.47 billion in cryptocurrencies on the same protocol.

What is Aave’s “Gho” stablecoin?

On Thursday, therefore, the protocol announced on Twitter its stablecoin project, called Gho, and invited its community to vote on its operation.

“The Gho would be backed by a diverse set of cryptocurrencies selected at the users’ discretion, while borrowers would continue to earn interest on their underlying security,” the protocol outlines.

If the cryptocurrencies that would support the gho have not been specified, it could be those already present on the Aave protocol, such as ether, polygon or even avalanche.

If this project were accepted, it could allow loan of stablecoin on Aave “more competitive”, would give users more leeway in this sector and would generate “additional revenue”, the protocol states.

This stablecoin would especially be generated by borrowers in return for covering their debt.

“That is, we are going to deposit cryptocurrencies as collateral for a value greater than what we want to borrow. As with any debt, gho will involve the payment of interest. This interest will then be completely donated to the Treasury. for the decentralized autonomous organization (DAO) “, specifies the Cryptoast medium.

For this stablecoin to be “stable”, it will depend in particular on “facilitators”, a concept introduced by Aave, which may relate to a unit. Six facilitators, including Aave or Credit Score, were mentioned in the minutes. Specifically, a facilitator will make it possible to stabilize stablecoin either by burning (deleting) tokens, or by generating new tokens on the market, making it possible to maintain some stability if it goes below or above the dollar to which it is indexed. .

“This project can revolutionize the ecosystem”

“This is the first time we have seen such a complex stablecoin: it feels like we have several layers in this stablecoin. This stablecoin is supported by facilitators who generate other income, and behind it we have a management system that will do it possible to vote on the operation of this stablecoin DAO will for example be able to make different polls One can for example wonder whether it is necessary to add a facilitator or not, in the same way DAO intends to make a Gho airdrop for Aave holders? “, confides BFM Crypto Marouane Essaïdi, digital asset manager at TheDiggers.

The goal for Aave seems to be to enable the adoption of this stable currency, which may go beyond decentralized financing.

This stablecoin “will provide a level of security and decentralization that is inclusive for crypto-native users, while applying a growth strategy that emphasizes its use cases for a growing mainstream audience. This strategy should focus on use cases such as payments , “protocol contours.

“This project can revolutionize the ecosystem. We have a mix of many decentralized financing tools. If it works, many projects will be inspired like this for other tokens. To see what it can provide in a more global system,” said Marouane Essaïdi.

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