A proposal put forth by Aave Companies to decentralized autonomous organization (DAO) voters on Thursday asked users to weigh in on whether its US dollar-pegged GHO stablecoin should be launched on the protocol.
The move means 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 cryptos.
Yet like their 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 sector’s third-largest protocol by total value with around $6.58 billion locked up in smart contracts, according to data provider DeFi Llama.
The protocol’s native token (AAVE) has risen more than 70% on the month and is changing hands for around $99.40, up by more than 4% on the day.
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