Wait, What? Aave is going to lauch Stablecoin ?

Tl; tr

1. One of the biggest Defi protocols, Aave, has announced to launch of stablecoin which is subject to DAO in the future
2. The stablecoin, GHO, will be minted against deposited over-collateral assets
3. 100% of the interest payment goes to DAO treasury
4. holder of stkAave ( staked Aave token ) will enjoy the discount rate when minting GHO
5. GHO will be distributed across multichain networks while being minted on Ethereum

Intro

//open & close position

Like the way DAI function, GHO requires a borrower to deposit specific assets at an over-collateral ratio in exchange for stablecoin GHO that narrowly target at 1USD, leading to opening a debt position of GHO for the borrower. When the debtor wants to close the position and thereby redeem the deposited assets, he has to pay back debts & accumulated fees in form of GHO. All the payment collected by interest fees goes to the DAO treasury.

//facilitor & bucket

Aave introduces the role of “facilitator” whose ability is to generate and burn GHO tokens under corresponding assets in various vaults, each of which will have different strategies under future governance proposals. Since the facilitator can stand for different kinds of assets under the Aave protocol including the AAVE market on Ethereum, Real World Assets(RWA), delta-neutral positions (stablecoin swap pool)..etc, it is likely the first Facilitator would simply mint and burn into the Aave Protocol’s Ethereum market. The maximum of GHO generated by corresponding facilitators depends on the bucket, which is decided by governance as well.

//combination with Aave.v3

After becoming one of the highest TLV protocols in crypto, Aave has upgrade to v3 to step into the multichain and layer 2 world. Isolation mode list new assets as isolated which has a limited debt ceiling and can be used to borrow permitted stablecoin, forcing the debtor to pay off their debt before exiting the position. With the introduction of a portal, GHO Is going to flow on Aave markets on different networks by burning the assets on the source network and immediately minting on the destination chain through bridging up the connection. Lastly, to make GHO bind at $1 with acceptable fluctuations, GHO inherits the PSM alike mechanism, e-mode.

source: Aave official page

Comparison with MakerDAO

//diverse collateral & borrowed stabecoin

Both Aave & Maker protocols stand for loan platform with over-collateralization, allowing users to deposit specific assets to borrow. However, when it comes to what you could borrow, DAI is the only option in MakerDAO, whereas Aave provides multiple possible stablecoins along with new features — isolation mode — coming up in future version v3. Aave will likely follow a similar path of creating a debt position for stablecoin as DAI did with a more diverse choice.

Aave with diverse collateral

//collateral assets

Instead of backing by several tokens or RWA on the Ethereum chain and the real world, Aave chooses to broaden its collateral in layer2 and multichain with a governance role, facilitator. Each facilitator could be an entity or protocol decided by proposals, following the strategies approved by Aave governance, taking the responsibility of stabilizing GHO by the means of burning and minting GHO under bucket capacity, which is voted by the Aave community as well.

multichain & layer 2 service

//price stability & liquidation

MakerDAO makes DAI peg to $1 by backing over-collateralization assets in the vault with acceptable fluctuations in the beginning, after the launch of PSM in mid of 2020, DAI has been more reliable within a tighter margin of deviation. Further, the success of DAI has been highly attributed to their active community among their participants being responsible for remaining the health of the ecosystem along with the intervention of auction, DAI buffer, and MKR.

Saying the success of Aave, brilliant design of smart contract and actions of liquidator should not be underestimated, however, Aave must take account of a role Aave governance will be playing if their vision is to build the stablecoin scattered over multichain and layer 2 worlds.

debt process & liquidation

Conclusion

1. Though Aava takes a similar path as DAI did, they extend their market to layer 2 & multichain world, launching a stablecoin, therefore, becomes essential to achieve the above version
2. Since lots of discussions are in ambiguity, some vital parameters or mechanisms such as liquidation, and interest rates should be kept up with.
3. Some innovative ideas have shown up with high LTV, facilitator will be a new governor role we take a close look at.
4. Numerous vital parameters are voted by governance, contributing to possibly inefficient process
5. Future topics to be noticed and followed up :

left → right meaning from short to long term

As the emerging layer 2 & multi-chain community are in active development, not to mention the Ethereum merge being in the corner, i’m looking forward to the decision and proposals of launching stablecoin in this moment from Aave core team, catering to the steep demand for stablecoin in Bear Market, since layer2 solution will never absent in company with final stage of ETH2.0

That’s all the topic today, hope you enjoy it

: )