Introducing: GHO

if GHO is above peg for any reason, it’s profitable to mint GHO with for example another stablecoin and “short it” on stableswaps and earn slippage.

With emode very efficient leverage can be enabled to do this both ways.

If GHO is “under peg” it’s profitable to pay back debt. Allowing GHO total supply to go down as debt repaid is GHO burnt as helping peg to be restored.

This kind of mechanism proved its resilience with other actors of the ecosystem since years.

“Let ppl make money by protecting the system”

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Great initiative.

Can someone please outline the key differences between DAI (by MakerDAO) and GHO and why would someone uses GHO over DAI for example?

Thanks, love to learn more.

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So all of those options for facilitators aren’t going to happen unless they are voted on? Also, do you mind explaining how the algorithmic facilitator is different than other algorithmic backed stable coins such as Luna?

Aave is decentralized, no option is by default without governance approval.

That being said, zero facilitators approved would mean that no GHO can be minted and will not be very efficient.

A predictable path is that governance allows “core” roles (such as Aave) on a first batch and then gradually and as candidates present themself to governance, new role and associated buckets of GHO minting are attributed.

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among other stuff, GHO allows position-based minting instead of collateral vault specific minting allowing a smoother and more balanced position management with very heavy gas optimization.

Aave specific features such as emode and portals allows for more use-case and makes GHO easier to integrate outside of L1 or to maintain peg than alternatives.

But i personally be crystal clear on this, the idea is to grow the decentralized stablecoin market not to compete.
The power of DeFi is that GHO allows more liquidity for decentralized stablecoin in the market, more fees for Aave, more volume and fees for Curve, more stability for other stablecoins more attractiveness of DeFi in general compared to CeFi.

With GHO Aave wins, but also curve, balancer, convex, makerdao, qidao, frax and so on…
Synergies define our ecosystem.

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Sam here from Frax :) We would love to support GHO with our FRAXBP pools on Curve to incentivize deep liquidity for GHO on launch and have GHO-FRAXBP be the trading hub for GHO. If you’re not familiar with FRAXBP: Deploy a "FRAXBP" Pool & whitelist Frax for veCRV Staking - Proposals - Curve.fi Governance

The idea is basically to pair stablecoins with a FRAX-USDC base pool and FRAX will incentivize the metapool proportional to its size/demand so it does not even need matching contributions by the project. It simply needs organic demand+size :slight_smile:

Additionally, we’d love to help out any way we can and participating by being a “facilitator” when more information is released on the structure. This is one of the most exciting Aave proposals in a long time, congratulations! Looking forward to seeing GHO in the wild. :sunglasses:

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This is a great proposal for Aave and increasing decentralized stablecoins adoption.

I do want to call out that borrowing interest rates cannot be controlled by the DAO. They need to be variable or fixed but be completely market-driven. There is ample literature and historical examples in TradFi and DeFi that pegged currencies (or stablecoins in this case) cannot have all three at the same time:

  1. Free flow of capital (in and out)
  2. Independent monetary policy (money supply or interest rates)
  3. Peg stability

Setting arbitrary interest rates controlled by the DAO will lead to markets out of equilibrium at the expense of capital controls (controlling minting/redeeming mechanism) OR the peg stability OR even both. UST wanted to achieve all three which led to significant capital imbalances. I am aware this is not an algorithmic stablecoin but please look further than this analogy to analyze if borrowing interest rates have to be really controlled by the DAO rather than be market-driven. In events where GHO depegs, an algorithmic interest rate model can increase borrow rates to induce demand for GHO and restore peg. Vice-versa to when GHO exceeds $1. This will of course impact the DAO revenue and make it less predictable but that seems worthwhile to having an artificial temporary balance of freely trading stablecoin with arbitrary interest rates and fixed peg.

If you want GHO to succeed, consider borrowing interest income as secondary consideration otherwise you are falling into the fallacy every country with a pegged currency has made and ultimately failed.

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Hey, Truco from Yeti Finance on Avalanche here :grinning:

Interested in how the facilitator role would work, for instance a system like Yeti Finance could be used to mint GHO against ERC-4626 or other vault standards for something like delta neutral strategies, which we have been developing on our own anyway. This would remove the need to produce fragmented liquidity for individual stablecoins across ecosystems when deploying on another chain like Ethereum mainnet since GHO liquidity would already exist. The Yeti model takes inspiration on stability mechanisms from Liquity, and could be a way to introduce GHO minting against high yielding assets.

We already take aToken v3 on Avalanche as collateral to mint YUSD, excited to explore potential collaborations with GHO.

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Hey, Benjamin from QiDao Protocol (MAI)

Congrats on GHO! I love me some CDPs <3

Excited to work with yall on making the stablecoin mcap more decentralized. Maybe this paves the way for a CDP 3pool on Curve (MAI-DAI-GHO)? :eyes:

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Hello team, Figue from Paladin.

Wow, congratulations on the massive annoucement, this is going to blow wide open the design space around Aave. We’d love more technical details on the actual implementation of the discount for stkAave holders. Would they need to deposit them on Aave, or would this be done by looking on their balances ? As a protocol controlling 50,000 + stkAave, we want our community to benefit as much as possible from these new opportunities !

We have opened a parallel governance post to discuss opportunities here, if any of you want to pitch in!

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Thats what i was waiting for. A battle tested defi protocol creating a decentralized stablecoin.
Has there been any simulation done like what is going to happen to GHO if immediately 50% of the Liquidity on Aave will be withdrawn? Will there be just huge liquidations and thus burning of the token or what could possibly happen to GHO?
Also what would happen if the protocol of Aave gets exploited in the staking module. The GHO being backed by these stkaave would loose their backing and probably their peg to these token?

Just some ideas that came around my mind.

What i really like is, that finally the token of Aave gets more use-case or at least revenue by staking in the safety module and thus getting GHO cheaper. This could incentives not only normal user but also big holder and other protocols to safe the Aave protocol and also earn fees by minting GHO and lending them to other participants.
I am already seeing the Aave wars ;)

Curious how you’re thinking about GHO oracles. Eg. would it be internally fixed to $1 (as is the case with most other CDP stablecoins such as MakerDAO’s DAI) or using a market price? I think $1 fixed (despite maybe some edge cases and risks) is probably more suitable, as otherwise people shorting GHO against other stablecoins to arb the peg could be blown up in a deleveraging spiral.

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The initial implementation would fix the price at $1 in a similar fashion as DAI, the GHO behavior can be customized though in the future as it’s an oracle configuration that is very similar to other assets on Aave

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Hi, Teddy from Notional here. Really exciting proposal! Like some of the other commenters on this post, I am looking forward to seeing more details on the facilitator role. Notional could help build out fixed rate borrow/lend markets for GHO - would love to explore!

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We need more decentralized stablecoins in Defi, there’s too much reliance on centralized stables such as USDC, and USDT. I think Aave creating a stablecoin will increase the confidence, trust, and adoption of decentralized stablecoins.
And shoutout to the already existing ones FRAX, DAI, LUSD, BAI, AUSD and so many more!
And I will like to ask, how can one contribute to the development.

Hi @Twoodward the facilitator role entitles the Facilitator to mint and burn GHO to certain bucket threshold set by the governance. The first Facilitator would be simply mint and burn into the Aave Protocol’s Ethereum market and after the launch the next step for the community would be to create a framework for Facilitator to manage the review and on-boarding. Also excited for the progress at Notional!

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Hi @truco delta neutral strategies could be one option down the line. Most importantly the Aave Community would need to review all the related risks carefully upon adding a new Facilitator when there is a new kind of a use-case underneath.

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Hi, I’m Mike, an active Aave contributor who helped build/design and currently manages the Aave RWA Market. I am also the Founder of DeFi Capital Markets, an entity focused on furthering the vision of RWAs on-chain. Previously, I was a core member of the Centrifuge team who helped pioneer the RWA category and am currently contributing to the Centrifuge, Aave (RWA market) and MakerDAO ecosystems to name a few.

We love the GHO concept and would be very keen to contribute to its success if we can.

@stani We would be interested in becoming the Facilitator for the RWA category (if not already spoken for). We expect that RWAs will be a gradual process, but would love to get involved from day one and help ideate on how to best approach etc. We have also been forming a decentralised group of credit experts that can be leveraged for diligence and know how. Have spoken to @Alex_BertoG and some other team members about this in the past. Would be great to brainstorm if this group could play a part as well. I think it could be instrumental in bringing standardisation and impartial views to the way we think about and analyse potential RWA collateral in the ecosystem. Let me know if it’s worth a chat :slight_smile:

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It’s a great proposal overall and makes tons of sense for the Aave DAO. There are a few things that could be specified a bit more, like the role and attributions of these “facilitators”, or the permissions on the GHO stablecoin: how will the governance of GHO by the DAO work in practice? Will there be an intermediary like a multisig needed to implement the changes voted by the DAO, or will the DAO be able to act directly on the GHO contracts?

Interest rate voted by the DAO? Are you INSANE?!

Finally, and that’s the beef of my concern, the model for the interest is simply inefficient, dangerous, and will lead to governance bloat. We know that already, thanks to MakerDAO having troubles with their DAO-defined interest rates for three-four years now. Having the interest rate of your loan evolve because some rando of the internet voted so is… Frustrating as a borrower, worrisome, and not encouraging at all long-term borrowing.

The model is simply weak and absurd: a DAO should not have a say on such an operational parameter - just like the AaveDAO is not voting on the interest rate for other tokens currently. It should be set algorithmically.

The proposal is still early, but I truly hope these three considerations will be improved upon before the launch, especially the interest rate.

Congrats and looking forward to see the future of GHO unfold: I hope the Aave DAO will not fall into the same pitfall as MakerDAO when it comes to interest rates, just for the sake of “having control”.

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Hey, Mike from stablecoins.wtf here!

Great to see the next community working on the future of stablecoins. Since our focus is on understanding risks associated with the different designs & mechanisms of stablecoins, we are really looking forward to more details regarding the proposed design for GHO. Some first questions which are coming up:

  • How will Aave governance ensure the quality and transparency of backing in the case of RWA-based facilitators (as shown as an example in the proposal) with centralized structures?

  • How would an “off-boarding” of a misaligned facilitator work?

  • How will you ensure an effective monetary policy by the DAO? Especially in a cross-chain and cross-facilitator ecosystem, the implications of any change in the interest rate based on DAO governance could do more harm than good.

Really looking forward into the detailed specs after GHO has been approved!

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