It’s been almost seven months since Aave officially launched its overcollateralized algorithmic stablecoin. Using the ticker GHO, the stablecoin operated all of this time under the $1 peg due to low demand and other technical difficulties. Now, GHO has finally reached its peg value.A Not-so-stable StablecoinHow Does GHO Work?Another Big Win for DeFi
While GHO is not the first algorithmic decentralized stablecoin, as its open-source code, decentralized governance, and over-collateralization are similar to those of DAI and other coins. What sets GHO apart from its competitors is its multi-collateral banking, which allows users to use any Aave-supported cryptocurrency to mint it.
GHO also generates interest when users supply collateral to the Aave Protocol to mint it. This means Aave can use these assets to provide loans to other users, benefiting the whole ecosystem and allowing users to effectively reduce their interest rates when borrowing.
With the debate around stablecoin regulation continuing to grow by the day, the increased decentralization of stablecoins like GHO is paramount. Only by having efficient and flexible stablecoins can this type of asset become a true driver of crypto’s mission to open financial markets and remove regulators.
Some regulators see stablecoins as a systemic risk, although this is far from certain. In fact, the banking system is under strain, and stablecoins seems like a small asset class given the size of the Western financial markets.
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Author: Nicholas Say
