Aave Labs Proposes GHO Stability Module Update

Aave Labs has introduced a temperature check proposal to update the GHO Stability Module (GSM) for more efficient management of its stablecoin system by integrating BUIDL, a tokenized fund from BlackRock representing traditional assets like cash and U.S. Treasury bills.

This contract allows for the conversion of two tokens at a predetermined ratio. Aave Labs proposes creating a new GSM instance that supports external integrations and related control mechanisms, specifically for BlackRock’s BUIDL. The GSM aims to secure a 1:1 convertibility of Aave’s native stablecoin GHO with another asset.

The proposal seeks to enable 1:1 fixed-ratio swaps between USD Coin (USDC) and GHO, using the leftover USDC to mint BUIDL shares that are also USD-equivalent. This may provide users with monthly dividends in BUIDL, while swap fees will accrue in GHO.

Aave Labs stated, “With this implementation, GSM can be more capital efficient while maintaining high standards as USDC backs GHO.”

They forecast that integrating BUIDL with the GSM could expand Aave DAO’s yield sources into real-world assets and create partnership opportunities with BlackRock, a leading financial institution.

Currently, the proposal is in the temperature check stage, meaning it is open for feedback from Aave governance members before a vote. If the feedback is positive, AAVE token holders will vote on its implementation.

As of now, BlackRock’s tokenized fund BUIDL has accumulated over $509 million, according to Etherscan. Its issuer, Securitize Markets, reported that BUIDL became the highest-valued tokenized treasury fund worldwide after surpassing the $500 million mark. Earlier this year, DeFi protocols like Mountain and Ondo utilized BUIDL for their derivative products.