Aave Protocol activates GHO stablecoin on the Ethereum mainnet

Lending protocol Aave has ventured into the realm of decentralized digital dollars by activating its decentralized GHO stablecoin on the Ethereum mainnet. 

The decisive move is a result of executing the approved governance vote put forth by Aave’s decentralized autonomous organization earlier this week. The GHO stablecoin, which was initially released on the Goerli testnet back in February 2023, will be available for users on the Aave version 3 on Ethereum.

This development aligns with an industry trend that is seeing DeFi platforms roll out their own stablecoins. Curve Finance, one the largest decentralized exchanges by trading volume, also launched its own overcollateralized stablecoin in May. 

Stablecoins are assets designed to mitigate market volatility by anchoring them to a pool of assets, typically fiat currencies or other cryptocurrencies. 

How GHO works

GHO will be backed by crypto assets like ether (ETH), with the Aave protocol issuing it as an overcollateralized loan. This method necessitates that users deposit crypto assets as collateral that exceed the value of the amount they intend to borrow.

The GHO stablecoin relies on a smart contract system called Ethereum Facilitator. This system enables users to deposit collateral and lend out GHO, with all collateral stored in the Ethereum mainnet pool. 

Upon launch, 'facilitators' — entities sanctioned by the DAO — will be authorized to issue GHO. The Aave V3 Ethereum platform has been confirmed as the first facilitator permitted to issue GHO.

A crucial feature of the GHO stablecoin is that it will redirect all interest accrued from loans directly to the Aave DAO treasury. The Aave DAO will vote and govern decisions like acceptable collateral assets for GHO as well as risk parameters.