Aave Labs and BlackRock Join Forces to Enhance the Stability of GHO Stablecoin

Aave Labs has put forward a plan to improve its GHO Stability Module (GSM) by teaming up with BlackRock's tokenized fund, BUIDL.

Aave Labs has proposed integrating BlackRock’s tokenized fund, BUIDL, with its GHO Stability Module (GSM) to enhance the stability and efficiency of GHO, Aave’s stablecoin. This partnership aims to connect decentralized finance (DeFi) with traditional finance.

The integration will optimize the fund management capabilities of the GSM. Excess USD Coin (USDC) will be converted by Aave into BUIDL tokens, closely linking GHO’s value to USDC and ensuring that even idle assets generate optimal returns.

In this system, users’ extra USDC will be converted into BUIDL tokens, representing traditional assets such as 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 enables seamless swaps between GHO and USDC, with fees collected in GHO and paid out monthly in BUIDL.

The proposal aims to enhance liquidity and make the GHO stablecoin more attractive by providing monthly income to users, strengthening the connection between DeFi and traditional finance. The proposal is currently open for community feedback before proceeding to a vote.

A deeper look at Aave’s stablecoin, BUIDL by BlackRock, and more

The GHO Stability Module (GSM), developed by Aave, is designed to maintain the stability of its stablecoin, GHO. Launched in July 2023, GHO has encountered challenges in maintaining its intended $1 peg, often trading below that value.

GSM enables the conversion of GHO and other approved tokens, aiding in managing risks and stabilizing the GHO peg. It integrates price and fee strategies, exposure limits, and asset liquidation mechanisms.

BlackRock’s BUI

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