How is GHO created?

GHO is minted by users who supply assets on Aave as collateral. Users continue to earn interest on their underlying collateral. GHO also introduces the concept of Facilitators. A Facilitator (such as a protocol) has the ability to trustlessly mint and burn GHO tokens. To be added as a Facilitator, they would have to be approved by Aave DAO. Currently, the only Facilitator is the Aave V3 market on Ethereum. Any asset on Aave V3's Ethereum market can be used to borrow GHO. GHO's supply, interest, and risk parameters are also managed by the Aave DAO.

How is the price of GHO kept stable?

GHO's price is kept stable through users arbitraging market inefficiencies. If the price of GHO is >$1, the market would swap GHO for other stablecoins. If the price of GHO is <$1, then borrowers would buyback GHO at a discount and payback their debt, thus reducing the supply.

How do liquidations work?

Liquidations are a way of protecting GHO holders from borrowers who fail to maintain sufficient collateral. When a borrower’s health factor drops below 1, their GHO borrow position becomes vulnerable to liquidation. Liquidators can repay up to 50% of the borrower’s GHO debt and receive a portion of their collateral at a discounted price. The repaid GHO is split into two parts: the principal amount is burned and the interest amount is sent to the Aave DAO treasury. Liquidations can be avoided by supplying more collateral or repaying some of the borrow position.