Aave at risk of decline as community members deem governance decisions by MakerDAO as “reckless”


  • AAVE price is down nearly 12% on the day of the announcement of a new governance proposal that addresses MakerDAO’s D3M program. 
  • A significant increase in the credit line for stablecoin DAI raises concerns regarding its use as collateral. 
  • The proposal calls for risk mitigation, allowing users to switch to other stablecoins like USDC or USDT as collateral. 

Lending protocol Aave (AAVE) announced on Tuesday a new governance proposal by the Aave-Chan initiative, a delegate and service provider for the protocol, to address problems related to MarkerDAO’s Direct Deposit Module (D3M). The proposal’s objective is to implement a 0% Loan-to-Value (LTV) risk parameter for the DAI stablecoin to help users switch to other stablecoins like USD Coin (USDC) and USDT (USD Tether) for collateral. 

AAVE protocol could suffer negative effects of excessive minting of DAI

A new proposal on AAVE points out that the recent governance decisions by MakerDAO are “reckless” and could negatively impact the protocol. MakerDAO’s D3M program has resulted in a significant increase in the credit line for DAI, which has grown from zero to a predicted 600 million DAI within less than a month. 

The potential for the extension of the credit line is 1 billion DAI in the near term, and the proposal cites an example of reckless minting policies at a smaller scale with Angle’s AgEUR (EURA) that minted into EULER and suffered a hack within a week. Angle is an over-collateralized stablecoin protocol and AgEUR is a decentralized Euro stablecoin. Cases like this one highlight the risk of a depeg for,the DAI stablecoin when it is used as a collateral for loans on AAVE. 

Therefore, the proposal suggest some risk mitigation measures without significantly negatively impacting the user base by offering users the ability to switch to stablecoins like USDC and USDT as collateral. 

AAVE trades at $114.03 on Binance, down nearly 12% on the day, likely triggered by Bitcoin’s sharp correction early on Tuesday and traders’ reaction to the proposal.


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Bitcoin price tanks to $62K ascribed to geopolitical tension a week to BTC halving

Bitcoin price tanks to $62K ascribed to geopolitical tension a week to BTC halving

Bitcoin price is dumping, and with it, most players in the cryptocurrency market arena. It comes in the final week to the BTC halving, expected on April 20. As crypto markets bleed, capital appears to be shifting to precious metals.

More Bitcoin News

Blast-based Leaper Finance flagged as expert cites nearly $1 million bait

Blast-based Leaper Finance flagged as expert cites nearly $1 million bait

Renowned on-chain detective ZachXBT has flagged Leaper Finance, a new project on Layer 2 network Blast. Blast is an EVM-equivalent optimistic rollup on Ethereum, offering native yield for Ethereum as well as stablecoins (USDC, USDT, DAI) for depositors.

More Cryptocurrencies News

Solana Price Prediction: SOL primed for recovery if bulls hold $130

Solana Price Prediction: SOL primed for recovery if bulls hold $130

Solana (SOL) price is nurturing a recovery rally along with the broader market as Bitcoin price reclaims $64,000. Amid mounting selling pressure, SOL dipped 20% on the weekly timeframe and 5% in the last day.

More Solana News

Will Celestia price’s bounce trigger a 50% rally for TIA bulls?

Will Celestia price’s bounce trigger a 50% rally for TIA bulls?

Celestia, like the broader cryptocurrency market, is trading with a bearish bias. However, the altcoin has missed out on the recent rally that saw the Bitcoin price ascend past the $70,000 psychological level.

More Celestia News

Bitcoin: BTC’s rangebound movement leaves traders confused

Bitcoin: BTC’s rangebound movement leaves traders confused

Bitcoin (BTC) price has been hovering around the $70,000 psychological level for a few weeks, resulting in a rangebound movement. This development could lead to a massive liquidation on either side before a directional move is established. 

Read full analysis

BTC

ETH

XRP