Introducing: GHO

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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GHO as a stable coin name is a miss for me.

I think there should be some reference to the currency being pegged to, aUSD, or USDa make sense to me

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The reference to a currency has limitations over long term, potentially you might want to swap the peg from one underlying asset to another (for various reasons) or track something else and being bound to a USD in the ticker would be a limiting factor. On top of that everyone is doing that already which makes it a bit repetitive and restrictive from the messaging perspective. DAI follows the same path actually and has been helpful to build a narrative over the years.

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hmm you could also do:

algorithmic interest rate x DAO_parameter (initially set to 1).

So if something weird happens, the DAO could shut down a specific market with infinite interest rate. The dao could also incentivise lending or repaying loans by setting DAO_parameter to less than 1 or more than 1.

Hi @Mike1third great questions,

  • This is very important process the community needs to think of in the future. As we all know, overcollateralized stablecoins bear similar risk perspectives as currently listing an asset into the Aave Protocol markets. This means that the community would need to have a framework around facilitators that would adopt similar approach at minimum and diligence as any asset listings in the protocol, and even beyond that, would see even more conservative approach to be taken.

  • Off-boarding would be based on governance decision similar as would be with delisting an asset in the Aave Protocol.

  • Setting a monetary policy should be in line with the risk/reward that the community is expecting to subscribe when adding a facilitator or the circumstances would change over time. Would be interesting to actually see various stakeholders to evolve to contribute on proposing monetary policies that the Aave governance can vote upon.

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Very interesting proposal, I am clearly in support of this. But I miss an explanation what the acronym GHO stands for, or did I just over-read it?

Exciting proposal. Had a few questions @MarcZeller

1.Will the collateral ratio be universal across GHO ecosystem or varies by Facilitator and its type of assets?

2.If I understand correctly, the intention of Facilitator Buckets is to cause increasing decentralization and diversification for $GHO over time, is that correct? different types of collateral in each Facilitators Buckets. Could this be tokenized bonds and real estate in the future?

3.Mint fee revenue gets split between Facilitators and Aave DAO. Is this like a 99/1, 90/10, or some other split?

4.100% of interest revenue on borrowing GHO goes to Aave DAO. Is this still the case if Aave is not the Facilitator?

5.If I understand correctly a user will initially be able to mint $GHO with TUSD, USDC, USDT and even volatile assets like ETH, is that correct?

6.How would you describe anti bank run mechanics, if any?

Thank you!

can you say a little more about the under peg “pay back debt”? I understand Aave liquidations when health factor <1 but not clear on how framework applies here.

How would it work for GHO under peg?

Thoughts on the image you posted under " How would GHO work". What this image implies makes it seem like you’re trying too hard to make GHO a DAI clone. In my opinion, RWA is just a bad idea, maker spends 8.2m/year on the RWA core unit and only makes 1.5m/year on it. The benefit of Defi is that it removes intermediaries, increases access and increases transparency, RWA does none of these.

I am unclear what the credit score Facilitator is meant to be, also how would GHO keep its peg to USD. would Aave it be willing to hold an infinite amount of USDC like maker does or would new AAVE tokens need to be minted to incentivize liquidity like SPELL dose?

GHO is super exciting. I believe getting to a multi-collateral GHO to support multiple crypto and real world assets would be visionary. Crypto is great but has its downsides (volatility, hacks, regulatory), RWA is a much bigger asset class (with its own issues of course) that can not be ignored. Thinking about this at the get-go will pay off in the longer term.
Excited to see how this unfolds!

The Facilitators described after the Facilitator 1 on-boarding are few examples of directions where the community can decide to add as a facilitator. RWAs indeed would be a way to scale stablecoins, however separate discussion in later time should be taken place on the topic. Aave Protocol does already have a small RWA market deployed by the Centrifuge community.

Regarding the peg - overcollateralization and collateralization management (including liquidations) bundled together with monetary policy are measures for establishing a peg. Another interesting feature is the eMode provided by Aave Protocol V3, which allows high borrowing power that acts in a similar fashion as PSM. For example, in over peg scenario users can mint more GHO and deploy across the markets, and in case of under peg scenarios retain GHO and use it as collateral with eMode to borrow other stablecoins.

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Hey folks. Trevor from Biconomy. Very nice proposal. Good to have more decentralized stablecoin options. Just curious what our options as an industry are for creating a stablecoin standard. It seems GHO will not be too different from DAI. If GHO is successful, we might end up with 4-5 different stables (all good projects with proper risk management and oversight from a well-formed DAO), but a bad UX for the industry. Is there an opportunity to come together and create an overcollateralized stablecoin standard?

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This is a very good welcoming development in AAVE protocol. I hope you can present to us a graphical presentation of your tokenomics to give us a much clearer view of how viable is your ecosystem and check for any flaws and to avoid any death spiral scenarios like what happen to Terra-UST.

It is amazing to see @AaveCompanies on the governance forum presenting revolutionary ideas and engaging with the community. GHO is a fantastic idea and launching it on the an established lending market which at its peak, held over $35b of liquidity and is governed by the 125,000 unique AAVE or stAAVE holders, makes a lot of sense to me.

The introduction of GHO on Aave v3 with E-Mode is going to enable some recursive yield arbitrage strategies which will become more profitable for users who hold stkAAVE. The net affect of this strategy will be to reduce borrowing rates across the platform and will lead to a higher TVL. Lower borrowing costs on stable coins in general is good for attracting borrowers.

If these yield arbitrage positions are not managed properly, like stETH and ETH recursive borrowing, there will be risk and opportunities for liquidators to maintain the health of the market. The supply cap (bucket) on GHO will be key to managing this at a system level. The Aave v3 functionality is perfect for managing the risks with bringing GHO to market. I’d be keen to build out a platform that shows the risks and help enable the community make informed decisions around the governance of GHO - I think this is a key aspect for facilitators to understand.

With 100% of the interest from borrowing GHO going to Aave DAO’s Treasury, this is going to be, not just a new source of revenue, but a very material revenue source. I am expecting this to be very lucrative for the Aave community. The introduction of GHO across all the different markets and ability to move funds seamlessly between the various networks will be a unique advantage to Aave who has been very proactive in deploying on other networks. The competitive edge of GHO will become increasingly apparent in time to come.

The facilitator role is interesting, the Aave DAO elects a facilitator via governance and then sets the supply limit on GHO that facilitator could deploy into the chosen market. This is an interesting concept of placing trust in an entity to manage supply of GHO. If this is like the Gauntlet and Bored Ghost Developing relationships, then it is an opportunity to welcome another key player into the Aave ecosystem. I am keen to see who emerges in this space.

I like how stkAAVE holders receive a discount when minting GHO and I think that is an elegant way of incentivising the use of GHO relative to other stable coins. I would expect the minting GHO incentives to be less or equal to revenue generated by GHO over any extended time horizon, perhaps not at launch though. These incentives will bring more GHO into supply and that will lead to downward pressure on GHO spot price as any whale will mint GHO and swap it to another stable coin.

I wonder how the minting incentives will interact with various other stable coins and their mechanisms. I would assume other over collateralised stable coins must now be considering offering similar incentives to borrowing/minting their stable coin. Lower net interest rates via incentives for borrowing or airdrop upon borrowing…

Creating deep liquidity for GHO will be a priority and the idea of incentivising liquidity on a DEX using GHO rather than stkAAVE or AAVE is an interesting thought - kind of like how Curve uses the 3crv token within the veTokenomics model. The GHO/stable coin pairs on Uni v3 and multi asset pools on Balancer v2 which tap into Aave’s lending market yield seem like ideas worth exploring. Balancer as an asset manager is compelling for helping drive TVL/revenue back to Aave markets.

This is very interesting, I am fan of the free markets when it comes to pricing debt. I am hoping this is not a fixed borrowing cost but rather a mechanism for variable interest rate loans.

Fixed Interest Loans is worth exploring, especially if there can be bond auctions with various loan durations. I wonder if we will see a facilitator emerge who acts like a auction house that sells bonds whereby bidders either post some collateral or have received delegation from other investors on Aave’s platform. By being able to mint a stable coin like GHO which is integrated into a lending market will provide a unique positioning in the market.

I am a big fan of GHO and I think it will do quite well within defi. I am excited to see what gets built on top of Aave markets at Hackathons as I think there are some unique advantages which can be tapped into relative to other stable coins in the market. The continuous innovation from Aave Companies and broader community is incredible.

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Really novel idea for improving the dynamics of collateral based stable stores of value. Positively, I see the benefit to the user and the experience. It provides a relatively versatile hedge against incentivized risks! Is there a supply cap yet determined? It should be able to be well controlled by said validator. Having a small supply cap prevents potential momentum shifts of reserves. A bucket distribution system is designed to overflow but residual factors need to be accounted for. I would start it start it small scale between chains and limit as many variables as possible in order to ensure the reserves are utilized redundantly in a healthy way for the protocol before assuming broader variables like rates and increased exposures.

We are excited about the vision for GHO and see the stablecoin as an incredibly strategic product for the Aave ecosystem. Some additional ideas:

  • Liquidity and Network Effects: Stablecoins need multiple liquidity venues to ensure market participants can enter/exit seamlessly. While Curve has dominated the stablecoin landscape, Uniswap v3 may be another compelling liquidity venue to build GHO liquidity. The Aave community could explore stkAAVE liquidity mining incentives for GHO pools on Curve and Uniswap. Newly issued tokens could also explore building DEX pairs using GHO as a liquidity pair, improving the stablecoin’s network effects. This is in addition to Aave’s E-Mode. Given stablecoins’ inherent payment focus, there may be value in working with wallets and consumer facing front ends closely i.e Argent, Donut, Metamask etc. Wallets could serve as an onramp into GHO and could receive some referral fee for driving activity.

  • Staggered Launch: Given the role GHO will play in DeFi, there may be value in structuring a staggered launch with moving supply caps. For example, at launch, the supply of GHO could be capped at 50MM. As the system and stablecoin are battle tested, this cap can be raised quickly. This limits the exposure in the event of an issue while setting a strong foundation to grow on. A staggered launch would especially help battle test the arbitrage mechanics.

  • Facilitator Guidelines: Before onboarding specific protocols as facilitators, there’s likely value in identifying how much exposure in general Aave wants to specific verticals i.e RWA, over-collateralized, algorithmic etc. Onboarding protocols such as Credix and Goldfinch may help increase GHO’s visibility and usability to a relatively new set of borrowers - emerging market credit participants. Protocols including Notional and Maple could also drive significant crypto-native activity. On the credit score side, Spectral Finance and ArcX may be worth exploring as facilitators as well.

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Huge points, Liquidity is like… well… water. the less of it there is the easier it is for a single splash to stretch the whole surface. its like filling a pond with liquid concrete.