Aave Labs has put forward a plan to improve its GHO Stability Module (GSM) by teaming up with BlackRock’s tokenized fund, BUIDL. This partnership aims to make Aave’s stablecoin, GHO, more stable and efficient by leveraging traditional financial assets in a blockchain setting.
The integration will enhance the GSM’s fund management. Aave converts excess USD Coin (USDC) into BUIDL tokens to keep GHO’s value closely tied to USDC. This ensures that even idle assets generate better returns.
In this system, users’ extra USDC will be converted into BUIDL tokens, representing traditional assets like cash and U.S. Treasury bills. These tokens will be held in a smart contract until users exchange their GHO back for USDC. The integration facilitates easy swaps between GHO and USDC, with fees collected in GHO and paid out monthly in BUIDL.
This proposal aims to improve liquidity and make the GHO stablecoin more appealing by providing monthly income to users, thereby strengthening the connection between decentralized finance (DeFi) and traditional finance. Currently, the proposal is open for community feedback before going to a vote.
Aaves stablecoin and BUIDL by BlackRock
The GHO Stability Module (GSM), developed by Aave, aims to maintain the stability of its stablecoin, GHO. Launched in July 2023, GHO has faced challenges in maintaining its intended $1 peg, frequently trading below that value.
GSM facilitates the conversion of GHO and other approved tokens, helping to manage risks and stabilize the GHO peg. It incorporates price and fee strategies, exposure limits, and asset liquidation mechanisms.
BlackRock’s BUIDL project is a tokenized fund on the Ethereum blockchain. Developed in partnership with Securitize, a company specializing in digitizing real-world assets, the BUIDL fund allows qualified investors to earn yields in U.S. dollars by investing in tokenized assets.
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Aaves in 2024
In 2024, Aave has made significant strides in the decentralized finance (DeFi) space, focusing on upgrades and expanding its protocol. One of the major milestones includes the preparation for Aave V4, which is set to launch in 2025.
The new version will feature a single liquidity layer designed to enhance efficiency and user experience. Aave V4 will also introduce automated interest rates using Chainlink data oracles and liquidity premiums to improve risk management.
Aave is a decentralized finance (DeFi) platform enabling people to borrow and lend cryptocurrency without traditional banks. Built on blockchain technology, specifically the Ethereum network, it operates without a central authority.
Users who lend their cryptocurrency on Aave earn interest from borrowers. Borrowers must provide collateral in cryptocurrency to ensure loan repayment. The platform matches lenders and borrowers automatically through smart contracts—self-executing agreements written in code.
Aave also offers unique features like “flash loans,” allowing users to borrow large amounts of cryptocurrency instantly, provided the loan is repaid within the same transaction.
