Aave DAO Approves Crypto-Backed Stablecoin GHO

key takeaways

A proposal to implement Aave’s crypto-collateralized stablecoin has passed by a majority DAO vote
Users will soon be allowed to mint the stablecoin against their supplied collaterals while still earning interest

Decentralized finance (DeFi) lending protocol Aave will soon inject a new crypto-collateralized stablecoin into its ecosystem following the conclusion of a unanimous vote via its DAO on Sunday.

A proposal put forth by Aave Companies, a group of development teams working in support of the protocol, on Thursday asked users to weigh in on whether its US dollar-pegged GHO stablecoin should be launched.

The decentralized autonomous organization (DAO) voted with roughly 501,000 AAVE, or 99.9%, in the affirmative, compared with 17 abstentions and 12 against the idea, according to results from a voter snapshot.

The move means Aave users and borrowers will be allowed to mint GHO against their supplied collaterals while earning interest on the underlying, similar to how other borrowed transactions function.

Unlike algorithmic stablecoins, whose designs have been called into question following the collapse of Terra, crypto-backed stablecoins are assets collateralized by a basket of other digital assets.

Yet like its algorithmic cousin, GHO will be created by users when they supply the required collateral. When a user repays a borrow position, the GHO protocol governing the stablecoin burns that user’s GHO, according to an initial proposal on July 8.

“Borrow interest rates for GHO will be determined by the AaveDAO, with a stable rate that may be adapted depending on market conditions,” Aave Companies said. “This design retains the Aave protocol’s borrow interest rate model flexibility, and it will be possible in the future to implement any interest rate strategy the Aave community sees fit.”

Founded in 2017 following a $16 million ICO raise, Aave is the DeFi sector’s third-largest protocol by total value with around $6.58 billion locked up in smart contracts, per DeFi Llama, behind Lido and MakerDAO.

Aave’s native token (AAVE) has risen 70% over the past month and is changing hands for around $99.40, up 4% on the day.

Get the news in your inbox. Explore Blockworks newsletters:

The Breakdown: Decoding crypto and the markets. Daily.
0xResearch: Alpha in your inbox. Think like an analyst.
Empire: Crypto news and analysis to start your day.
Forward Guidance: The intersection of crypto, macro and policy.
The Drop: Apps, games, memes and more.
Lightspeed: All things Solana.
Supply Shock: Bitcoin, bitcoin, bitcoin.