Aave, a decentralized finance (DeFi) platform, has published a governance proposal to integrate Chainlink’s Cross-Chain Interoperability Protocol (CCIP) for secure cross-chain transfers of its GHO stablecoin.
Aave Wants To Integrate Chainlink’s CCIP For Cross-Chain GHO Transfers
The suggestion, floated by Aave Labs, the lending and borrowing protocol’s developer, says the CCIP integration addresses the current limitations of its algorithmic stablecoin, GHO, if approved by the community. As it is currently constituted, the stablecoin is primarily accessible only via minting on Ethereum or through secondary markets.
According to CoinMarketCap data, GHO recorded a trading volume of around $1.6 million in the past 24 hours. At the same time, GHO is available in several secondary markets, including Uniswap v3 and Balancer v2 on Ethereum.
GHO markets | Source: CoinMarketCap
However, considering its role in DeFi and Aave, this volume is relatively lower. DAI, the algorithmic stablecoin managed by MakerDAO, already boasts a market cap of over $5.3 billion, with trading volume in the past 24 hours exceeding $124 million.
Technically, Chainlink’s CCIP offers a framework enabling secure cross-chain communication between multiple blockchains. Through this solution, incorporating protocols can transfer assets and data across different protocols. In this way, CCIP seems to be a secure alternative to bridges that act as channels for moving assets across blockchains but have been targeted on multiple occasions, leading to loss of user funds.
By implementing CCIP, Aave aims to transform GHO into a multichain asset, enabling stablecoin users to interact with it across various blockchain networks. In this assessment, this integration will significantly enhance GHO’s liquidity, accessibility, and interoperability. All this will likely lift GHO the stablecoin and liquidity ranking, further boosting Aave’s total value locked (TVL).
Aave TVL | Source: DeFiLlama
According to DeFiLlama data on January 18, Aave manages over $7.3 billion of assets and deploys them in 10 chains, including Polygon, Avalanche, and several Ethereum layer-2 options like Optimism and Arbitrum.
Will LINK Break Above $17?
The integration of CCIP will be a crucial development in the Aave and Chainlink ecosystems. Though the move could boost GHO liquidity and improve access, LINK and AAVE may also benefit.
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CCIP is designed to incentivize integrating protocols, such as Aave, to pay fees using LINK, the native token of Chainlink. Using this token means they are not surcharged. If they choose to pay using AAVE, Aave’s native governance token, they will be subject to a 10% surcharge fee.
LINK is firm and trading at near December 2023 highs. Thus far, the token is up 170% from September 2023 lows. A break above $17 may push the token to fresh highs to continue the solid march up from H2 2023.
Feature image from Canva, chart from TradingView
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Author: Dalmas Ngetich