Aave Labs Bets on BlackRock's Tokenized Fund BUIDL to Maintain GHO's Dollar Peg

A new GSM would let Aave exchange users' USD Coin (USDC) given to mint its ecosystem native dollar-backed stablecoin GHO for BUIDL shares.

Aave Labs proposed an update to its GHO Stability Module (GSM) on Aug. 26, which involves using BlackRock’s tokenized fund BUIDL’s shares to help maintain the dollar peg of its stablecoin.

According to the proposal, a new GSM would let Aave exchange users’ USD Coin (USDC) given to mint its ecosystem native dollar-backed stablecoin GHO for BUIDL shares. The tokens would be held in a smart contract until the user redeems its GHO for USDC.

BUIDL’s shares have a stable value of $1 per token and pay daily returns to its investors each month. The fund allocates its assets to cash, U.S. Treasury bills, and repurchase agreements. According to RWA.xyz data, BUIDL has over $502 million in assets under management (AUM).

Boosting GHO’s market cap

The proposal noted that this new GSM expands yield sources from Aave DAO into the real-world assets (RWA) sector and increases partnership opportunities with BlackRock.

This is a much-needed boost for GHO, as the stablecoin has a market cap of roughly $120 million. Despite registering a 146% growth since May 1, the token is still far behind its prominent peers, such as PYUSD and First Digital USD, which boast market caps of $1 billion and $2.8 billion, respectively.

Notably, Aave Labs bets on BUIDL’s liquidity and integration with USDC to help maintain its stablecoin peg with the dollar, as shareholders from BlackRock’s tokenized fund can redeem them for USDC at any time with pre-approved holders.

This is the second such GSM implemented for GHO, after a January proposal introduced the creation of two smart contracts to facilitate the redeeming of GHO for USDC and Tether USD (USDT).

Moreover, USDC issuer Circle also provided a $100 million redemption fund that guarantees the conversion from BUIDL into USDC from GHO/USDC’s GSM. As of now, the fund has $74.7 million USDC available.

According to the proposal, swap fees will be accumulated in GHO, and dividends will be paid monthly in BUIDL. Additionally, the GSM may or may not integrate a USDC buffer to compensate for the gas redemption cost of BUIDL for small swaps, which will be further evaluated later.

The proposal is still in the “temp check” phase, which is commonly used to see how members of Aave governance react to the proposal. If the reactions are mainly positive, AAVE token holders will be able to vote on the new GSM proposal.

As of press time, only one user had commented, expressing generally positive feedback on the proposal.

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