Aave DAO approving overcollateralized stablecoin splits crypto community

Aave DAO, the governance physique behind decentralized finance (DeFi) large Aave (AAVE) protocol, has unanimously voted in favor of making an overcollateralized stablecoin referred to as GHO.

The Aave firm put up the GHO creation proposal on July 28, which obtained an amazing 99.9% community vote over the course of three days. The proposal ended on Jul 31 at 10:00 am GMT with 501,000 AAVE tokens pledged in favor of making the crypto-collateral backed stablecoin.

Aave DAO GHO Voting Snapshot

GHO can be an Ethereum-based and decentralized stablecoin pegged to the U.S. greenback that may very well be collateralized with a number of crypto belongings. The subsequent step within the course of can be the creation of the GHO utilizing a brand new Aave enchancment protocol (AIP), and any consumer trying to mint GHO can achieve this by depositing some other crypto asset accepted by the Aave protocol.

Aave is a non-custodial decentralized crypto lending and borrowing platform that’s hoping to leverage its overcollateralized stablecoin to supply higher liquidity and passive revenue alternative.

Being an overcollateralized stablecoin, customers should at all times deposit a better quantity of crypto than the minting worth of the GHO. This would guarantee an overcollateralized mortgage on these stablecoins. Once the consumer repays the mortgage, their place will likely be liquidated, and their borrowed GHO will likely be burnt.

The lending protocol will even cost curiosity on loans taken out in GHO, with funds going again to the Aave DAO treasury, quite than the usual reserve issue collected when customers borrow different belongings.

Related: Aave to launch overcollateralized stablecoin referred to as GHO

Aave’s announcement a few crypto-collateralized stablecoin introduced again reminiscences of the just lately depegged TerraUSD (UST), the stablecoin collapse that worn out almost $40 billion in buyers’ cash. Many customers had been fast to dismiss it as one other stablecoin slated for depegging.

They at all times work out. Go #AAVE
Depegging? Easy.

Just deploy extra capital. Steady gals. pic.twitter.com/PnNFLwX8mX

— Turbolion (@HogSomFan) July 31, 2022

Many Aave proponents had been fast to level out the flawed working of the UST that made it uncollateralized, which ultimately led to its depegging, nonetheless, the upcoming GHO can be overcollateralized much like DAI which implies the belongings backing the stablecoin will at all times be of upper worth. One consumer wrote:

“UST was uncollateralized and run by a crook that attacked people who called out that he was a crook. Aave is building an overcollateralized algorithmic stablecoin similar to DAI. Aave is the biggest DeFi lending protocol in the world and has been nothing but transparent.”

The native token of the favored DeFi protocol rose over 15% over the previous week within the wake of the GHO proposal and has seen a 4% surge over the previous 24 hours after the approval.

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