Integration of the stablecoin GHO on Arbitrum: innovation and scalability in the Aave protocol

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Aave news: the recent implementation of the stablecoin GHO on the layer-2 network of Ethereum marks a significant step for the Arbitrum protocol.

This shift not only aims to improve the scalability and efficiency of transactions, but also leverages Chainlink’s CCIP interoperability protocol to ensure a smooth and secure interconnection with other blockchains.

Let’s see all the details below. 

Expanding opportunities with Arbitrum: the implementation of Aave’s stablecoin GHO

As anticipated, the stablecoin GHO is now available on the Arbitrum network. This follows a vote by the decentralized autonomous organization (DAO) Aave, a community managed by members who propose and administer changes to the lending protocol,

The DAO of Aave intends to launch the stablecoin GHO on various networks over time. However, it has chosen to initially implement it on Arbitrum to take advantage of the low transaction costs and the increased processing capacity of the layer-2 network.

The decision to expand the stablecoin to other networks gradually is based on considerations of security and risk management. 

This approach allows the DAO to accurately assess the context before extending the presence of GHO to other blockchain ecosystems.

Chainlink CCIP: enabling multi-chain GHO

The CCIP protocol of Chainlink acts as an interoperability layer that allows the Aave DAO to transfer the stablecoin GHO, originally launched on the Ethereum network, to Arbitrum and to other networks in the future.

The interoperability of stablecoins is achieved through two mechanisms. Namely the burn-and-mint model and the lock-and-release function. These mechanisms either lock or burn the GHO tokens on the initial source chain and then release them on the new chain.

For example, when GHO stablecoins are bridged from the Ethereum network to another blockchain, GHO tokens are locked in a smart contract on Ethereum, known as the “Vault Contract”.

Subsequently, they are minted by a facilitator on the target blockchain. Conversely, when GHO tokens are brought back to Ethereum, they are burned on the alternative chain and an equivalent amount is released from the Vault Contract on Ethereum. 

If the migration does not involve Ethereum, a facilitator will burn the GHO tokens on the first chain and mint new ones on the second.

We remind that the collaboration between Chainlink and Arbitrum started in 2020 and has evolved into a collaborative partnership to promote the cross-chain development of decentralized applications.

Since then, Chainlink has established itself as one of the leading blockchain interoperability and oracle networks. Specifically, conducting pilot programs to transfer value between blockchains with global institutions, such as the interbank messaging system SWIFT.

Thanks to this momentum, Chainlink’s CCIP protocol continued to see an increase in usage and adoption in 2024, with cumulative revenues from network fees rising to $377,724 in March, mainly due to activity on Arbitrum.

Evolution of Ethereum layer-2 networks: the challenges of Arbitrum and Optimism in 2024

Arbitrum (ARB) and Optimism (OP) have recorded significant variations in their transaction activities and financial performance this year. 

Despite an increase in transactional traffic in their ecosystems, both networks have seen a decline in their total value locked (TVL) and the value of their native tokens.

According to data from IntoTheBlock, the usage of Arbitrum and Optimism has quadrupled in the last twelve months. This increase was particularly evident in the second quarter, thanks to the adoption of EIP 4844. 

This proposal aims to improve Ethereum’s ability to handle larger volumes by implementing a more efficient type of transaction. A factor that leads to a reduction in fees and better processing capacity.

Arbitrum has experienced remarkable growth, with the number of transactions increasing from less than 1 million to a record level of 2.6 million on June 26.

At the same time, Optimism showed an increase in transactions, going from 800,000 in April to 409,000.

However, Arbitrum remains much more active, currently surpassing Optimism by over 1.5 million transactions, despite the performance fluctuations of the latter.