The largest DeFi Lending platform Aave has announced plans to launch a decentralized stablecoin. The peer-to-peer crypto lender will be one of the first platforms to launch a decentralized stablecoin since most the top stablecoins are issued by centralized companies.
Stablecoins have grown rapidly in popularity among crypto users, including those who have been skeptical about using them. The popularity stems from the relative stability of stablecoins since they are pegged to fiat currencies or other less volatile assets.
Stablecoins like USDT are pegged to the USD at a 1:1 ratio, making its price to be fixed at almost the same price as the USD. Their popularity has however been truncated following the collapse of TerraUSD, a USD-pegged algorithmic stablecoin.
This has also attracted the attention of regulators who are now calling for the regulation of stablecoins since many investors are yet to recovery from the incident. USDT however remains the most popular stablecoin and also the most used of any crypto asset.
Decentralized stablecoins are not so easy to come by. Aave will be issuing the stablecoin via a decentralized autonomous organization known as AaveDAO. the DAO will be governed by a community of people, which is what makes it a decentralized organization.
The new stablecoin, GHO, will be backed by assets supported on Aave, and programmed to always be worth exactly $1 on Aave’s network, according to Aave. This is the best proposal so far for creating a stablecoin without having to rely on a centralized issuer.
GHO to Diversify Stablecoins
According to Stani Kulechov, founder and chief executive officer of Aave and of GHO developer Aave Companies, the stablecoin will help to diversify stablecoins, thus offering users more options.
“A native stablecoin actually helps to diversify the stablecoins, including in Aave protocol itself,” he said in an interview. Aave will use income from interests charged on borrowing GHO will be used to better reward community contributors, including risk managers, developers, and security experts, Kulechov said.
Kulechov also hopes that the GHO will speed up the mainstream adoption of the DeFi industry, as stablecoins offer consumers and merchants a better option for buying and selling than the typical volatile crypto assets.
“More than two years ago, the Aave community recognized the need for an Aave-native decentralized and overcollateralized stablecoin that would empower users and serve as a payment layer. Stablecoins have the potential to become the payment layer for web3 because of their speed without the price volatility that has deterred consumers and merchants from using digital currencies,” Aave wrote in a blog post.
Will Aave Prove Regulators Wrong?
Regulators are going after stablecoins because of terraUSD collapse. However, there may be a chance to prove them wrong, and Aave’s GHO may be the project to do this. If it turns out like TerraUSD or worse however, it stablecoins may come under more serious scrutiny going forward.