Aave co-founder Stani Kulechov feels more optimistic than ever that the $5 billion DeFi lending protocol's upcoming stablecoin GHO (pronounced "go" as in ghost, the project's mascot) will solve real world payment problems.
“I think it's a big issue, because just going back a couple of months ago, I was visiting Buenos Aires, Argentina, and stablecoins are actually used to preserve value and transact,” he said on the latest episode of Decrypt's gm podcast. “So for example, the national currency in Argentina has almost 100% inflation, meaning whatever you earn as a consumer today, one year later, you have half of that value in your possession—half of the purchasing power.”
But most Argentinians use centralized exchanges, he added. Kulechov thinks Aave’s GHO will help attract stablecoin users because DeFi makes it more affordable to process transactions.
“What I think is missing at the moment, when it comes to stablecoins, and what we’ve seen—the progression of scalability of the underlying infrastructure of the blockchain—is that we are now, the AAVE protocol for example, it’s not only deployed on Ethereum, Polygon, and Avalance, but also on layer 2s, such as Optimism and Arbitrum,” Kulechov said.
“And these layer 2s radically decrease the cost of actually transacting and using blockchain-based security and inheriting the Ethereum security in layer 2s," he continued. "So what I’m thinking and what I’m envisioning is that we have, first time ever, actually an opportunity to get stablecoins to be used as the Internet money and solving real world payment problems by still using the blockchain.”
After being proposed in July and approved for development by the Aave community a few weeks later, GHO has undergone a security audit by Open Zeppelin and been slated to release on the Aave V3 Market on Ethereum. There’s no actual release date yet, but an October development update said that Aave V3 will be ready for the Ethereum mainnet, a prerequisite for GHO, in the coming weeks.
GHO will be entering a large and competitive market. Stablecoins account for $146 billion, or roughly 14%, of the $1 trillion global crypto market capitalization, according to CoinGecko.
When it launches, Aave users will be able to mint GHO against deposited collateral, much like MakerDAO’s DAI stablecoin. But there are a few key differences. For example, Aave will allow users to mint GHO against multiple types of collateral rather than creating a separate vault for each asset, like Maker.
That, said Kulechov, makes it much more efficient. Fewer steps means users will spend less gas depositing collateral and minting GHO.
“The key difference is that the AAVE community is using the AAVE protocol for creating that stablecoin. So as a liquidity provider, you actually provide liquidity into the AAVE protocol and you earn on those assets that you’re supplying,” Kulechov said. “And at the same time, you can mint the stablecoin.
"It’s a bit more capital-efficient way of creating stablecoins, but also it creates a bit more diversity in the AAVE protocol stablecoin markets,” he said.
The diversity of assets backing GHO is another key feature, Kulechov explained.
For example, USD Coin (USDC), a centralized stablecoin from , represents 52% of the assets collateralizing DAI (followed by 9% Ethereum, 8% Pax Dollar), according to Dai Stats. One of the goals with GHO will be to use a wider array of crypto assets to back it.