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Decentralized Stablecoin Wars: Aave’s GHO vs crvUSD

Tether, Binance USD or USDC. Those are probably the best known stablecoins in the world. They are also the biggest, with their combined market capitalisation being over $120 billion dollars. However, these are only centralized stablecoins, which are facing some risks.

And that is the reason why recently, we can see a new trend arising under the name of “decentralized stablecoins.” Aave and Curve, two prominent decentralized finance platforms are about to launch and release decentralized stablecoins GHO and crvUSD, respectively.

What is the main difference between these stablecoins and their centralized peers? What is the difference between them and is one of them better than the other? Those will be the main questions that today’s article will try to answer.

What are stablecoins?

Before we look at GHO and crvUSD, let’s briefly look at stablecoins as such. Stablecoins are a type of cryptocurrency designed to maintain a stable value relative to another asset or currency, typically a fiat currency like the US dollar or the euro. The goal of stablecoins is to provide the benefits of cryptocurrencies, such as fast and secure transactions, while also avoiding the volatility typically associated with other cryptocurrencies like Bitcoin.

Market capitalisation of the biggest stablecoins in the crypto world, Source:

Stablecoins have gained popularity in recent years as a way to facilitate transactions and provide a stable store of value in the volatile cryptocurrency market. They are often used for trading and investing, as well as for remittances and other types of transactions that require a stable currency.

There are several types of stablecoins, but the most common types are:

  • Fiat-collateralized stablecoins: These stablecoins are backed by reserves of fiat currency, such as the US dollar or the euro. The issuer of the stablecoin is expected to hold an equivalent amount of the fiat currency in reserve, which is used to redeem the stablecoins if necessary.
  • Cryptocurrency-collateralized stablecoins: These stablecoins are backed by reserves of other cryptocurrencies, such as Bitcoin or Ethereum. The issuer of the stablecoin holds an equivalent amount of the cryptocurrency in reserve, which is used to redeem the stablecoins if necessary.
  • Algorithmic stablecoins: These stablecoins use an algorithm to maintain a stable value. The algorithm typically uses a combination of price feeds and supply adjustments to keep the stablecoin’s value stable. As we could have seen last year, they are also prone to huge volatility and problems, which is one of the reasons why their reputation is currently not the best.

That might also be one of the reasons why the cryptocurrency community is currently turning its focus on a new type of stablecoins – decentralized stablecoins. They should combine the best features of the stablecoins, while eliminating the need for a centralized entity to be in charge. While the algorithmic stablecoins have tried this, they have not been successful.

However, there are currently two decentralized stablecoins that will try to do just that and are currently very “hot.” These are stablecoins released by Aave and Curve, decentralized finance platforms with solid names in the space. Many even suspect that these two protocols might currently be in a form of “decentralized stablecoins war.” What are their stablecoins all about?

Aave’s GHO stablecoin

The first one is GHO, a decentralized stablecoin that will be governed by Aave, one of the biggest lending platforms in the world of decentralized finance. GHO should work thanks to a system of facilitators and buckets, in which the facilitators are entities who can mint and burn GHO tokens, while the buckets represent the maximum amount of GHO that these facilitators can mint.

Source: TheNewsCrypto

Aave is expected to be the first facilitator, with the Aave governance deciding who will be able to become a facilitator and what size of the bucket they will have. While this may not look decentralized at first, it needs to be stated that Aave is currently being run as a decentralized autonomous organization (DAO), which means that all of its decisions are made through collective governance of Aave holders. They will also have a benefit of borrowing GHO at discounted rate, which means that the launch of GHO could also help spark the interest in Aave tokens and the whole Aave DAO ecosystem.

This should be also supported by the fact that Aave DAO will decide on everything important connected to GHO. Whether that is its supply, interest rate or risk parameters, the Aave DAO community will be in charge of the whole decision-making process of GHO-related news, updates and announcements.

GHO is also known as multi-collateral stablecoin, which means that it will be backed by a pool of different crypto assets. This pool should for instance include the likes of Ethereum (ETH) and should prevent the volatility or depegging in case the price of one of the underlying collateralized assets will move significantly.

Curve Finance and its crvUSD stablecoin

The second decentralized stablecoin that is currently seeing a huge interest in the media is Curve Finance’s crvUSD. It has implemented a unique mechanism called Lending Liquidating AMM Algorithm (LLAMMA). LLAMMA is a cross between the traditional automated market maker (AMM) and lending market. This unique combination creates a dedicated market between the collateral as such and the crvUSD.

The whole logic behind the LLAMMA is as follows. The users deposit collateral to LLAMMA market in order to mint or borrow the crvUSD. Once that happens, the algorithm automatically converts between the collateral and crvUSD in response to the recent changes to the collateral and its price.

Thanks to this, the crvUSD as well as the collateral being held should not allow for liquidations, thus eliminating one of the biggest risks connected to decentralized or algorithmic stablecoins. However, the whole rebalancing process also has a drawback, which is that it can lead to a loss.

Research analyst from Blockworks, Dan Smith, describes the whole idea behind crvUSD such as this:

“Instead of liquidation resulting in a loss of collateral, LLAMMA will gradually shift users deposits between the collateral and crvUSD as the price of the collateral changes.”

Thus, in case insolvency should happen, the LLAMMA mechanism will automatically convert crvUSD back to its collateral (such as Ethereum for instance). This will happen only if the price of collateral used to mint crvUSD falls. It should reduce the risk of insolvency quite significantly, as well as reducing the risk connected to collateralization.

As with most USD pegged stablecoins, crvUSD aims to maintain its steady peg to dollar, which is something that the PegKeeper will be in charge of. This automated smart contract will ensure that the crvUSD price is kept in 1:1 ratio with the dollar.

Source: TheNewsCrypto

If the price of the coin exceeds the $1 mark, the PegKeeper will mint and deposit uncollateralized crvUSD to the stable pool. If the inverse scenario happens in which the crvUSD’s price is less than $1, the PegKeeper will burn some of the stablecoins in the pool, thus maintaining the perfect peg to the dollar’s value.

Which one is better – GHO or crvUSD?

The relationship between the GHO and crvUSD stablecoins has been described as “decentralized stablecoins war.” While this might be a bit too far fetched, the fact is that both of these platforms are currently releasing new stablecoins, which are aiming to solve some serious problems connected to stablecoins.

This means that while they are trying to improve the overall stablecoin ecosystem, they will be fighting together in the stablecoin market for attention and use case. And who is expected to be the winner of this fight? Well, it is all too soon to know the right answer for several reasons:

Apples with oranges

A head-to-head comparison of these two stablecoins does not make sense. They are both serving a bit different purpose in a different market. While they are in the cryptocurrency industry and in the subsector of decentralized finance, it is impossible to predict whether one will be more successful than the other.

Initial stages of the development

Both of them are only in their initial stages and have not even been completely and fully implemented. Their development will also continue further down the line, which means that while one might look better than the other currently, that does not mean that some “killer feature” or improvement will not completely change the dynamic between them in the future.

New competitors on the horizon

Moreover, as we have seen on countless occasions in cryptocurrency history, once something catches up, many will follow. We have seen this with the rise of altcoins, ICOs, DeFi protocols, Metaverses, AI coins and many others. That means that if crvUSD and GHO should make it, it is very likely that many other projects, protocols and DAOs will try to repeat their success and create their own decentralized stablecoin.


While it is true that the stablecoin market is huge and the appetite for these types of cryptocurrencies is only increasing, undoubtedly these two platforms will be fighting together to get more users on their side. As of now, it is too soon to judge who will be the winner of the “decentralized stablecoin war.”


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