A popular decentralized finance (DeFi) protocol is preparing to launch its own community-supported US dollar-pegged stablecoin.
In a new announcement, lending and borrowing platform Aave (AAVE) says it will build the new stablecoin, known as GHO, on leading smart contract platform Ethereum (ETH).
The crypto project’s decentralized autonomous organization (DAO) will be responsible for approving and then governing the token.
“GHO will provide a level of security and decentralization that is inclusive for crypto-native users while also using a growth strategy that emphasizes its use cases for a growing mainstream audience.
GHO will be over-collateralized by assets that continue to earn yield, backed by multiple types of collateral available on the Aave Protocol, [and] governed by the Aave community.”
The borrowing process for the stablecoin will mirror Aave’s traditional model where users provide sufficient collateral for new GHO to be minted. Later on, repaid or liquidated positions result in the tokens being burned while collected interest will go to the AaveDAO treasury.
Aave says it’s dipping its toes into the world of stablecoins because they provide fast, convenient and secure transfer of fiat dollars over blockchains.
“Stablecoins have reached a central position in the [cryptocurrency] space, now standing at an approximate $150 billion market capitalization. Stablecoins provide a fast, efficient, borderless and stable way to transfer value on the blockchain.
Decentralized stablecoins add transparency and censorship resistance to this list of benefits – an integral part of Web3.
The usage of stablecoins will only continue to grow as crypto assets become further integrated with a user base that is less crypto-native. Decentralized stablecoins provide censorship-resistant fiat-denominated currency on the blockchain.”
At time of writing, Aave is up 12.55% on the day and trading for $71.96.
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