Aave, a leading lending protocol, has proposed adjustments to the risk parameters linked to the MakerDAO stablecoin, DAI. The proposal aims to minimize potential risks associated with the issuance policy of DAI by updating the risk parameters specifically for this stablecoin. The Aave Chan Initiative (ACI) team recommends adjusting DAI’s loan-to-value ratio (LTV) to 0% across all Aave deployments in response to MakerDAO’s aggressive D3M program, which has rapidly increased the credit line for DAI. The proposal also suggests removing sDAI incentives from the Merit program to address concerns about MakerDAO’s governance decisions and the risks associated with liquidity injections in a non-battle-tested protocol.
The proposal from ACI aims to mitigate risks associated with using DAI as collateral on Aave, particularly in light of past incidents like Angle’s AgEUR being minted into EULER and hacked within a week. The intention is to prevent stablecoin depegging scenarios and safeguard the stability and integrity of the Aave protocol. Despite potential challenges, the proposal seeks to address risks without significantly impacting Aave’s user base, as only a fraction of DAI deposits are currently utilized as collateral on the platform. Users have alternative collateral options like USDC or USDT, offering liquidity and flexibility.
In response to MakerDAO’s evaluation of investing $600 million in DAI into USDe and sUSDe through DeFi protocol Morpho Labs, the proposal aims to leverage the capabilities of Morpho Labs’ DeFi lending protocol. The reasons for investing in USDe and sUSDe include user preferences for certain financial products and leverages within the DeFi space, indicating a strong preference for USDe over sUSDe pools and higher leverage over lower leverage. The proposal also outlines financial and strategic benefits, such as incentives for using USDe and sUSDe collateral on Morpho, reducing liquidity risk, boosting Ethena’s insurance fund revenue, and improving investment security over time.
The initial recommendation is to set MakerDAO’s USDe exposure limit at $600 million, with the potential to increase as Ethena’s platform expands. The investment would be capped at $800 million to ensure financial stability and protect against substantial losses. The proposal by MonetSupply from Block Analitica, a risk intelligence firm for DeFi, highlights the benefits of investing in USDe and sUSDe, emphasizing strategic advantages and risk mitigation measures to optimize the use of DAI within the DeFi ecosystem. MakerDAO’s consideration of this proposal reflects a proactive approach to managing risks and maximizing the potential of stablecoins like DAI in the evolving DeFi landscape.
Overall, these proposals and evaluations demonstrate the ongoing efforts within the DeFi ecosystem to address emerging risks, optimize capital allocation, and enhance protocol security. By adjusting risk parameters, leveraging strategic investments, and implementing risk mitigation measures, protocols like Aave and MakerDAO seek to ensure the stability, integrity, and growth of decentralized finance platforms. Collaboration, innovation, and risk management are essential components for navigating the complexities and opportunities within the DeFi space, ultimately contributing to a more robust and resilient ecosystem for users and investors.
