Since its launch 6 months ago, GHO has struggled to retain its ideal stock price.
It’s been almost seven months since Aave officially launched its overcollateralized algorithmic stablecoin. Using the symbol GHO, the stablecoin traded all this time below the $1 peg due to low demand and other technical difficulties. Now, GHO has finally reached its fixed value.
Aave founder Stani Kulechov made the announcement via X (formerly known as Tweeter) on February 6. In his tweet, Kulechov congratulated the community for enabling what he called a “building block for DeFi and payments.” Next to the message in X, Kulechov attached an image showing the price of GHO at $1.
Stablecoins are all the rage and people are using them all over the world. But, with its popularity, many questions arise. There are also many questions surrounding regulations, which are being talked about at the highest levels of government.
A Not-So-Stable Stablecoin
A total of $2 million worth of GHO was minted on the Ethereum network when the stablecoin launched in July 2023. While the majority of the Aave community considered the launch a success, many cryptocurrency users considered GHO to be a failure.
Due to its algorithmic nature, GHO’s volatility was too high for many to consider it a true stablecoin. GHO’s value was as low as $0.917 on October 24, just three months after its launch, a price that largely held until November of that year.
While the price of the stablecoin has risen 8.6% above its all-time low at the time of writing, this volatility has prevented it from going mainstream. Despite this, GHO has generated over $2.1 million in annualized revenue and has seen major improvements over the months, such as the GHO Stability Module.
These improvements seem to be working so far, as GHO’s volatility has certainly decreased in recent weeks. In fact, the value of the stablecoin has managed to stay above the $0.995 mark as of this writing, which would be a good performance if it were to hold for a longer period of time.
What Is GHO?
Aave describes the stablecoin as a “decentralized, overcollateralized” asset. The stablecoin is backed by various collateral assets, including Ethereum’s native cryptocurrency, Ether.
Collateral could be other cryptocurrencies and tokens, but also certain real-world assets (real estate or banking financial products, for example).
“GHO is fully governed by Aave DAO, who together establish the rules and policies that govern GHO,” the exchange states. This makes GHO similar in operation to the DAI stablecoin.
Unlike some of the most popular stablecoins, GHO does not have a redemption mechanism that allows its holder to exchange it for its equivalent in non-crypto assets. The lack of a redemption mechanism means that users can only trade their GHO at market value on secondary markets.
Popular stablecoins often back their value with a dollar reserve, ensuring that the 1-to-1 peg is always maintained. GHO, on the other hand, attempts to maintain this peg by using a cryptocurrency-based overcollateralization.
Another Big Win for DeFi
While GHO is not the first decentralized algorithmic stablecoin, its open source code, decentralized governance, and overcollateralization are similar to DAI and other coins. What sets GHO apart from its competitors is its multi-collateral banking, which allows users to use any Aave-compatible cryptocurrency to mint.
Some regulators view stablecoins as a systemic risk, although this is far from certain. Indeed, the banking system is under pressure and stablecoins seem like a small asset class given the size of Western financial markets.
By Audy Castaneda