Aave DeployingStablecoin GHO on Ethereum-based Goerli Testnet

Aave is set to rival fellow DeFi protocols by deploying native stablecoin GHO. GHO entry into the competitive space as it launches the Goerli testnet. 

The move to issue Aave protocol-native stablecoin will likely stimulate increased rivalry in the DeFi lending protocols. The statement identified Aave Companies’ move as critical since it mirrors the entry of a key DeFi player into the lending protocol. 

Besides developers, GHO adopters identified as go will have codebase access. Also, both parties can observe the stablecoin’s mechanism before its subsequent release to the public on Ethereum’s blockchain.

Community’s Approval Mandatory for Deploying GHO on Mainnet

Deploying GHO on the mainnet relies on the community’s approval after the users’ discussion. The community’s approval is necessary since the Aave lending and borrowing platform enables users to obtain crypto loans using smart contracts. 

Additionally, Aave allows users to reap yields from their token holdings without evoking third-party oversight. Instead, its operations rely upon the management input of Aave DAO, a decentralized autonomous organization, via community voting and proposals. 

DeFi users have portrayed high anticipation of Aave native stablecoin since the community overwhelmingly voted to favor its development in August 2022. Stablecoin comprises unique cryptos deriving their value from external assets and aiming to peg its exchange price as matching the US dollar. The digital asset is today considered the backbone relied upon by the crypto ecosystem to aid trading. Moreover, stablecoin facilitates the execution of conventional and digital asset transfers. As such, its yield spiked to reach $136 billion in total market capitalization. 

GHO Confronting Fierce Threat from Aave DeFi Rivals

GHO introduction faces a fierce competition from Aave DeFi rival protocols. GHO will face fierce competition from several DeFi protocols that have issued native stablecoins. Also, several DeFi protocols declared the intention to craft native stablecoin to appeal to users, given that crypto lending is flagging. 

Aave would play catchup to DeFi’s leading platform Maker’s DAI, with stablecoin estimated at over $5 billion circulating. Aave is set to face off with Curve protocol as it inches close to introducing native crvUSD stablecoin. 

A review of Aave’s position indicates $7 billion in digital assets is pledged to the protocol to jumpstart the native stablecoin. A crypto intelligence analyst at Messari, Dustin Teander, indicated that GHO is set to become a leading decentralized-backed stablecoin. The analyst regretted that Aave’s stablecoin must navigate the declining demand for debt in DeFi. Teander indicated that the situation would take a significant time to turn around. 

GHO Mechanism 

Aave is set to run GHO as an overcollateralized stablecoin, as revealed in the technical documentation by Emilio Frangella and Steven Valeri, supported by cryptos. The tech paper indicated that the GHO would retain a pegged price of $1. 

Valeri demonstrated that GHO supply is subject to mint-and-burn control mechanisms. As such, Aave mints the GHO stablecoins whenever digital assets are deposited. Crypto deposits are collateral when borrowing GHO without extinguishing yield from the underlying digital assets. The repayment of the principal loan obliges Aave to burn the GHO issued. The process targets to reduce circulation and return the underlying collateral. 

Incentivizing Use of Aave Token when Borrowing GHO Stablecoin

Teander revealed that individuals staking the AAVE governance token while borrowing the GHO stablecoin at a discounted price. He adds that the discounted rate incentivizes users to stake AAVE. Its accomplishment could yield a short-term increase in the staked AAVE relative to the discounted interest rates. 

In the long run, if the discount is valuable enough, it could be a viable incentive to move away from dilutive token emissions to attract capital. The executive clarified that Aave DAO would influence the token’s supply relative to the interest rate and risk parameters. The DAO would realize all interest rewards while servicing the GHO loan. This possibility distinguishes Aave from other rival lending and borrowing platforms.  

Teander explained that GHO would leverage facilitators, among DeFi protocols, towards sustaining minting and burning the tokens. Nevertheless, upper limits identified as buckets would receive approval by the Aave governance. The testnet release comes days after Open Zeppelin, ABDK, and SigmaPrime blockchain code firms audited GHO deployment. Meanwhile, Certora is undertaking the audit. The audit comes after Aave protocol initiated the Bug Bounty program to encourage community members to discover and report security vulnerabilities to rewards capped at $250000.  

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