ave is a decentralized protocol that enables users to lend and borrow cryptocurrency in exchange for fees. It is a peer-to-peer service that uses an algorithm to match lenders and borrowers.

The proposal defines "Facilitators" as other protocols that will be able to mint GHO "trustlessly" if a loan-to-value collateral ratio is met. The facilitators will burn the minted GHO tokens when a user repays the loan or has their position liquidated. The number of tokens that facilitators can mint will be limited to "buckets" determined by AAVE governance.

The DAO treasury will receive all repaid interest. If an Aave Improvement Proposal is approved, the GHO stablecoin will be managed using Aave governance methods. The Aave governance token is a token based on Ethereum that allows holders to vote on proposals.

The coin will function similarly to an algorithmic stablecoin in that $1 of the stablecoin will be minted in exchange for $1 of cryptocurrency.

AAVE community reacts

The DAO community expressed concern about Aave DAO setting interest rates and the importance of limiting the supply of the GHO token in response to the proposal.

The community also emphasized the importance of a module in charge of keeping GHO pegged to the US dollar and adequately screening facilitators.

If the community approves, the new Ethereum protocol will be the first facilitator when it switches to a less energy-intensive consensus mechanism known as proof-of-stake. A separate proposal will be created to establish a starting state for GHO.

Celsius paid collateral to access locked tokens

Aave differs from more centralized lenders such as the now-defunct Celsius. The operation of borrowing and lending in centralized lending is opaque and typically dictated by a few centralized voices. The company borrowed money without putting up any collateral that lenders could liquidate, according to Celsius' bankruptcy filing.

On decentralized platforms without intermediaries or a top-down hierarchy, the 100 percent or more required collateral provides the lender with information about the borrower's pedigree. Because there is no middleman, lenders will receive much lower returns than a company like Celsius would.

Celsius, ironically, began repaying Maker and Aave loans just days before declaring bankruptcy.


Aug 1, 2022
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