GHO Algorithmic Stablecoin

Another stablecoin may soon be entering an already crowded market for dollar-pegged assets. Aave governance has just voted in favor of creating one called GHO.

On July 31st, the Aave community voted in favor of creating an algorithmic stablecoin called GHO. Let’s discover more about GHO.

Will GHO be Able to Meet Expectations?

The voting was unanimous with 1,793 voters or 99.99% giving the proposal a “yes”. More than half a million AAVE tokens were pledged in the voting process.

The new collateral-backed decentralized stablecoin was unveiled in early July. Furthermore, it will be backed by assets on the Aave lending platform.

Aave users will be able to mint GHO using collateral they have on the platform. It sounds a little like Terra’s failed UST where LUNA tokens were used to mint stablecoins. However, GHO will not be algorithmic and will be more like Maker’s DAI stablecoin.

GHO would be backed by a diversified set of crypto-assets chosen at the users’ discretion, the announcement explained. Furthermore, borrowers can continue earning interest on their underlying collateral. Once the position is repaid, the GHO tokens are burned by the protocol.

More About GHO

The stablecoin will also generate additional revenue for the Aave DAO. This is achieved by sending 100% of interest payments on GHO loans to the DAO. Moreover, Aave stated that the next step is voting on the genesis parameters of GHO. This will be another proposal on the governance forum to be announced shortly.

Nowadays, according to CoinGecko, stablecoins currently represent more the 13% of the total crypto market capitalization which is a historically high level. Therefore, GHO is entering an already crowded market. Also, USDT currently dominates stablecoin markets with a 43% share. The second most popular stablecoin is the fiat-backed USDC from Circle with a 36% market share.

GHO will likely be heavily used in DeFi as opposed to being held as a hedge against inflationary fiat currencies.

AAVE Price Outlook

AAVE, the native token of this protocol, has retreated 9% on the day with the broader crypto market. As a result, AAVE was trading at $90.09 at the time of writing this article. Moreover, it currently has a marketcap of $1.2 billion with 24-hour trading of $219 million.

AAVE has made an impressive 56% over the past month on GHO momentum. However, the token has dumped more than 86% since its May 2021 all-time high of $662.

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