Ipor intern Profile picture
Oct 16 β€’ 22 tweets β€’ 12 min read
Here is all you need to know about $GHO, a flexible and decentralized stablecoin by @AaveAave.

How does it aim to solve the stablecoin trilemma?

Let's find out πŸ§΅πŸ‘‡
First off, the stablecoin trilemma is an attempt by which stablecoin issuers aim to find an equilibrium between
- Capital efficiency / Scalability
- Peg / Price stability
- Decentralization

More info here: stablecoins.wtf/resources/the-…

@Stablecoinswtf by @mike1third @dennis_zoma
1) GHO aims to achieve a stable value via overcollateralization

- $GHO is minted when crypto assets in excess of the value $GHO are supplied.
- This is the mechanism used to reduce the impact of price fluctuations during high volatility events
2) $GHO can only be minted/burnt by Facilitators.

For each Facilitator, Governance will approve a bucket (a representation of the upward limit of $GHO a specific facilitator can generate)
Each Facilitator ("F") is assigned a Bucket (β€œB”) with a specified capacity (β€œC”) and, given a set of Facilitators F0, F1, ...FN βˆ’ 1 each with a bucket capacity ("CB"), the max. amount available through all Facilitators is given by πŸ‘‡
3) $GHO is designed to accrue interested when supplied to a liquidity protocol.

The interest rate is determined by @AaveAave governance

The @AaveAave protocol will be the first facilitator due to the amount of liquidity in Ethereum and other L1s and L2s networks
4) Given how $GHO interacts with @AaveAave, $GHO cannot be supplied on the Aave Ethereum Market
5) When $GHO is borrowed from the Ethereum market, new $GHO and $GHO Debt Tokens are minted and transferred to the user based upon the collateralization requirements
- The Bucket level for the Facilitator is updated to reflect the amount minted upon a borrow transaction

- If the amount requested exceeds the Bucket capacity of the Facilitator, the borrow action will fail
6 ) Repayments and Liquidations:

- $GHO is returned to the @AaveAave market by the user/liquidator and $GHO is burned.
- The interest repaid goes to the @AaveAave DAO treasury
- Since the original supply is burned, the Bucket level is decreased
7) Interest rates

- $GHO contracts don't follow supply/demand dynamics 😱
- Interest rates are not set algorithmically based on utilization
The reason is that there is no supply side, hence @AaveAave Governance will statically adjust interest rates depending on the need for the GHO supply to contract/expand
8) Borrow Discount Model (Safety Module)

The initial model aims to provide additional utililty to stkAave holders. Initially, there will be:
- Parameters set by Governance
- A maximum amount threshold
- A discount Rate
- The threshold determines the amx. amount of $GHO that can be minted at a discount per stkAave held by the user
- The discount rate determines the discount on the borrow rate that the user will receive per discounted $GHO
9) The Discount Accounting tracks outstanding debt via a global borrow index parameter and user-based scaled balances:

-User's outstanding debt = user's scaled balance times the global borrow index

-Upon borrowing, the initial scaled balance = principal borrowed / borrow index
Each time a user's $GHO debt balance is updated, the protocols checks whether the user should receive a discount.

- If entitled to a discount, the user’s interest is accumulated and their discount is applied to their balance increase
10) Price stability:
- Users can always borrow, repay and liquidate $GHO at $1.
- The @AaveAave protocol has set the the price of 1 $GHO to $1 (no market pricing via oracles)
Since there are no market oracles, there will be arbitrage:
- When price of $GHO < $1, borrowers are incentivized to buy $GHO at a discount and repay/liquidate, earning on the difference
- When price of $GHO > $1, the incentive is to mint and sell $GHO
That's it! If you want to go more in depth, here are some resources:
- $GHO paper: governance.aave.com/uploads/short-…
- Dev update: governance.aave.com/t/gho-developm…
- Aavenomics: docs.aave.com/aavenomics/
For more updates pay attention to the Governance Forum at governance.aave.com and key members like @StaniKulechov and @lemiscate

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More from @ipor_intern

Oct 14
It has been over a month since @fraxfinance deployed Fraxlend on Ethereum mainnet. With almost $2M in TVL and one of the most capable teams in #DeFi, let's find out what this innovative lending platform is all about

πŸ‘‡πŸ§΅ Image
Permissionless and decentralized, just like $FRAX itself. Anyone can create a new market between 2 ERC-20 pairs as long as a @chainlink data feed is available.

Not only that, but also every market is isolated from one another as well, which avoids risks from spreading bad debt Image
The inner mechanics are simple to understand, a money market where lenders and borrowers can satisfy each other needs.

The protocol issues a fToken to lenders and, as the fToken earns interest, it can be redeemed for an increasing amount of the underlying asset. Image
Read 16 tweets

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