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Aave’s Proposal to Create Own Stablecoin Officially Approved

A majority of Aave DAO voters approved the creation of a new stablecoin.

The proposal, submitted by Aave Companies, was supported by 99.9% of voters, who pledged half a million AAVE in approval to create GHO, a collateral-backed stablecoin that would include other cryptocurrencies.

Aave is a decentralized marketplace protocol that allows users to borrow and lend cryptocurrency. While providing liquidity to the cryptocurrency market, users can earn passive income from digital assets allocated to a smart contract. The platform is open source and boasts a liquidity of US$9.8 billion, according to Aave’s homepage.

Users who want to mint GHO will first deposit Aave-accepted crypto. GHO borrowers for crypto assets will still earn interest on the underlying collateral used to mint the stablecoin. The lending protocol will also charge interest on loans made within the GHO, with payments going back to the Aave DAO.

The deposits that users allocate to mint GHO will have to be greater than the GHO value they receive, meaning the loans will be over-collateralized. When a user repays a loan position or is liquidated, the GHO loan is removed from the protocol.

Although the proposal has been approved, the rollout and implementation of the GHO will take quite a while as it is implemented through the Aave Enhanced Protocol (AIP), with the Aave DAO responsible for overseeing the distribution. distribute stablecoins after the creation has been checked.

The vote lasted for three days and the price of AAVE, the platform’s native token, increased shortly after the proposal was approved, to around $108. At the time of writing, AAVE is trading at $102.50, up 4.5% over the past 24 hours.

As of now, the market capitalization of all stablecoins is over $153 billion, according to CoinMarketCap, mainly consisting of Tether’s USDT and Circle’s USDC. Recently, the regulatory framework in the United States regarding the regulation of stablecoins was delayed to September.

GHO will be pegged to the US dollar and stablecoins will be backed by a combination of cryptocurrencies that users can already deposit on the platform. The stablecoin’s principal interest rate will be determined by the Aave DAO, according to GHO’s recommendation on Aave’s website.