Aave’s Proposal to Counter MakerDAO DAI Expansion Risk

Aave, a lending protocol, has introduced a new proposal called the Aave Risk Framework Committee (ARFC) proposal, which aims to adjust the risk parameters of the Dai stablecoin. The proposal suggests that the loan-to-value ratio (LTV) of Dai be adjusted to 0% on all Aave deployments. The proposal also recommends removing sDAI incentives from the Merit program to counteract MakerDAO’s recent aggressive expansion of the DAI credit line. MakerDAO has rapidly increased the DAI credit line from zero to an estimated 600 million DAI within a month. The ARFC proposal aims to reduce potential risks while having minimal impact on users.

The ARFC proposal highlights the risks associated with using Dai as loan collateral on Aave. It mentions the example of Angle’s AgEUR stablecoin, which was minted into EULER and got hacked within a week. This demonstrates the dangers of stablecoin depegging when used as collateral. The proposal emphasizes the need to address these risks and provide alternative collateral options.

In the meantime, MakerDAO is preparing for the launch of its “Endgame” transformation. Co-founder Rune Christensen explains that the goal of the transformation is to focus on scalable resilience and sustainable user growth. The plan involves rebranding the operation and scaling the DAI stablecoin from its current $4.5 billion market capitalization to “100 billion and beyond,” similar to Tether’s USDT. As part of this transformation, each Maker token will be redenominated into 24,000 NewGovTokens.

On March 6, Eigenlayer overtook Aave to become the second-largest DeFi protocol with a total value locked (TVL) of $11.5 billion, according to DefiLlama. Aave currently has over 5,700 daily active users, while Lido, the top DeFi protocol, has less than 430 daily active users, based on Token Terminal data. This highlights the growing popularity and success of Aave in the decentralized finance space.

The Aave Risk Framework Committee proposal addresses the risks associated with the Dai stablecoin and aims to protect users while offering alternative collateral options. MakerDAO is focused on its “Endgame” transformation to scale the DAI stablecoin and compete with other major stablecoins. Aave’s recent success as the second-largest DeFi protocol further exemplifies its growing prominence in the industry.

Miran Umstead

Miran Umstead

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