• Through this overcollateralized stablecoin, users can earn interest on any collateral they use in minting the stablecoin.
• This stablecoin would enhance borrowing competitiveness on Aave.

The Aave DAO has approved a new stablecoin (the GHO stablecoin) for the platform it is about to launch. The majority of the voters in the Aave community supported the approval of this stablecoin on the Aave network. Thus, users can mint GHO using the collaterals they supply.

In addition, users will earn interest on any collateral they use in minting the stablecoin. The Aave DAO will also receive interest fees from GHO loan tokens. The proposal states that users can mint the GHO stablecoin against multiple crypto assets.

Borrowers of GHO will keep receiving interest on their supplied collateral. These interest earnings work similarly to other borrow transactions on the Aave network. This preliminary proposal focuses on getting the Aave DAO to approve the GHO stablecoin.

It also intends to safelist the Aave V2 Ethereum market to become the GHO’s first facilitator. Lastly, it hopes to get approval for the GHO community to start discussing initial parameters. The protocol’s official Twitter page states that discussions on the initial parameters will begin on the DAO forum before August 12.

Aave’s sent its first proposal to the DAO for this overcollateralized stablecoin four weeks ago. Meanwhile, the wider DAO community has advised the Aave DAO to set interest rates and limit the supply of the GHO tokens. It also suggested a module ensuring that the GHO doesn’t lose its USD peg. The DAO community further tasked the Aave DAO with having an excellent process to screen facilitators.

If the Ethereum network completes its switch to a proof-of-stake network before the approval, it would be the first facilitator for this stablecoin as a pos network. This stablecoin would enhance borrowing competitiveness on Aave. AAVE token’s price rose by 13 percent following news about the GHO stablecoin. Hence, it is likely that this approval would cause another rise in AAVE’s price.

Stablecoins and crypto

Many industry players regard stablecoins as a central pillar of the crypto market; this view is accurate considering its massive effect on the DeFi sector. Nevertheless, it hasn’t been short of criticism. The collapse of the Terra network, including its stablecoin (TerraUSD), further solidified the critics’ position. A recent arcane research data revealed a $35 billion drop in global stablecoin supply.

That amount represents an 18.8 percent decline from Q1 2022 figures. Historically, that is the biggest supply decline in the stablecoin industry. The drop is hardly surprising since the crypto market has been declining since the beginning of the year. However, regulators still consider stablecoins as risky. Hence, they are coming up with stablecoin regulations.

Britain has already released its stablecoin regulatory policy, and other authorities are planning to do the same. Following the crash of the terra network in May, the European Central Bank stated that it had become a matter of urgent necessity to have a stablecoin regulation.