GHO is a decentralized stablecoin born from the Aave protocol. It promises a transparent, crypto-backed alternative to traditional dollar-pegged assets like USDT and USDC. Unlike most stablecoins, GHO is overcollateralized by crypto and governed by the Aave community. This quick guide breaks down what the GHO token is, how it works, and what makes it different. You will also learn about the risks and why GHO could matter in the broader DeFi stablecoin market.
KEY TAKEAWAYS
➤ GHO is a decentralized, over-collateralized stablecoin created and governed by the Aave protocol.
➤ It offers transparency, DAO governance, staking rewards, and discounted borrowing for AAVE token holders.
➤ GHO lacks fiat off-ramps, depends on crypto collateral, and has limited adoption beyond Aave.
➤ GHO suits DeFi users who want on-chain stability, Aave integration, and utility over speculative gains.
What is GHO?
GHO is a decentralized stablecoin created by Aave, the DeFi protocol known for crypto lending and borrowing. It launched in July 2023 following a community vote and serves as Aave’s native USD-pegged token.
GHO is fully backed by crypto collateral and is minted when you borrow against assets within the Aave ecosystem. Unlike centralized stablecoins backed by cash reserves, GHO’s supply and interest rates are governed by Aave DAO.
Its design prioritizes transparency — anyone can verify the collateral backing each token on-chain. Over-collateralization and automated liquidations help maintain its $1 peg.
➤ In contrast, Tether (USDT) has faced criticism for years over opaque reserve disclosures and delayed audits. There are ongoing concerns about the quality and composition of its backing.
How GHO works
You need to deposit approved collateral into the Aave protocol and borrow GHO against it to mint GHO.
The process is similar to taking a crypto-backed loan. You must provide more collateral than the GHO you receive, which then creates a buffer that supports price stability.
If your collateral value drops below a safe threshold, Aave will liquidate it to cover your GHO debt and keep the system solvent.
When you borrow GHO, you pay interest — but it doesn’t go to a lender. It goes to the Aave DAO. That’s because GHO doesn’t come from someone else’s funds. It’s minted on the spot when you borrow. You can repay GHO at any time to reclaim your collateral, always at a 1:1 value, which helps GHO stay near its dollar peg.
GHO’s supply isn’t open-ended. Only approved smart contracts, called facilitators, can mint or burn it. Each facilitator has a limit, set by Aave governance, on how much GHO it can create. These caps help avoid sudden surges in supply. The initial cap was 35 million GHO, and it has increased over time as the system proved stable.
Unique features and tokenomics
One of GHO’s standout features is the discounted interest rate available to AAVE stakers. If you stake AAVE in the Aave Safety Module, you qualify to borrow GHO at a lower interest rate. This adds real utility to the AAVE token and rewards long-term community participation.
➤ All interest paid on GHO loans goes directly to the Aave DAO treasury, which creates a sustainable revenue stream. Even during its early stages, GHO contributed meaningful income.
At a 35 million GHO cap, Aave’s founder, Stani Kulechov, estimated it could generate around $2.1 million per year for the DAO.
GHO is also tightly integrated into Aave’s broader ecosystem. You can stake GHO in the Safety Module to earn yield and receive stkGHO tokens in return. These rewards are paid in AAVE and other incentives, and staked funds also serve as a backstop in the event of a protocol shortfall.
A significant share of GHO in circulation has already been staked for these benefits.
Aave’s “Merit” program offers additional incentives to active GHO users, which further increases demand for borrowing and holding the stablecoin.
Aave also launched the GHO Stability Module (GSM) to help GHO maintain its peg. The GSM allows users to swap GHO 1:1 with other stablecoins. If GHO trades below $1, arbitrageurs can buy it on the open market and redeem it through the GSM, pushing its price back toward parity.
Use cases and adoption
You can use GHO like any other dollar-pegged stablecoin. For example:
- Trades and payments: Swap GHO on DEXs or use it to settle transactions in USD terms without touching fiat.
- DeFi loans: Supply GHO to lending markets or use it as collateral on supported DeFi platforms.
- Liquidity pools: Add GHO to stablecoin pools to earn trading fees and incentives while supporting market liquidity.
It is worth mentioning that adoption started slowly but gained momentum as Aave expanded support and introduced more incentives. Subsequently, GHO’s circulating supply rose from launch in mid-2023 to over $200 million by Q1 2025.
This growth reflected higher mint caps, increased utility, and rising demand across DeFi. Although GHO remains smaller than major stablecoins like USDT and USDC, its transparent and decentralized model has helped it present itself as a credible alternative.
Aave’s governance framework plays a central role in that perception. For instance, GHO parameters are determined by community votes, and its on-chain reserves remain fully auditable. This level of transparency reinforces user trust in its collateralization and long-term stability.
Risks and challenges
GHO’s rollout has faced a few early hurdles. In its initial months, it often traded slightly below its $1 peg due to limited demand and the absence of a direct redemption mechanism.
➤ A redemption mechanism in the context of stablecoins refers to a system that allows users to exchange the stablecoin directly for an equivalent amount of another stable asset—usually fiat currency or another stablecoin—at a fixed rate (typically $1).
Aave governance responded by raising GHO’s interest rate to slow issuance and launched the GHO Stability Module for 1:1 redemptions. It also significantly increased incentives for adoption. By early 2024, these steps helped restore and maintain the peg.
However, collateral risk remains a core concern. GHO is only as strong as the crypto assets backing it. A sharp decline in collateral value — especially large holdings like ETH — could strain the system. Aave mitigates this through conservative loan parameters and rapid liquidations, but extreme market swings still pose a risk.
Smart contract vulnerabilities also remain a possibility. A flaw in Aave or GHO’s code could disrupt the stablecoin’s mechanics. To reduce this risk, the contracts have been audited, and key parameters are governed by community vote.
Overall, GHO’s over-collateralized design compared to algorithmic models, like the failed TerraUSD, offers a more resilient structure (similar to DAI). Still, GHO is relatively new and remains small in market cap.
Unlike centralized stablecoins such as USDT or USDC, which maintain tight pegs using real-world reserves, GHO depends entirely on DeFi activity and market trust. So, reaching comparable scale and stability will likely take some time.
Gho token: Advantages vs. challenges
| Advantages | Challenges |
| Decentralized and fully on-chain | No direct fiat redemption |
| Governed by Aave DAO | Depends on Aave’s collateral risk model |
| Over-collateralized for stability | Limited adoption outside Aave |
| Interest flows to the Aave treasury | Smart contract risk remains a concern |
| Discounted borrowing for AAVE stakers | |
| Transparent reserve data | |
| Integrated staking and rewards |
Should you invest in Gho?
GHO is gradually finding its footing as a stable, transparent alternative to centralized stablecoins. Its tight integration with Aave, strong governance, and on-chain collateral model give it staying power. But whether GHO is worth holding depends on your goals. If you are active in DeFi or part of the Aave ecosystem, GHO can offer real utility. Just remember — it is a stablecoin, not a growth asset.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Always do your own research (DYOR).
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