Aave launches proposal to counter MakerDAO DAI expansion risk

Lending protocol Aave launched a new Aave Risk Framework Committee (ARFC) proposal to adjust the risk parameters of the Dai (DAI $1.00) stablecoin.

The Aave Chan Initiative (ACI) team put forward the proposal, suggesting that DAI’s loan-to-value ratio (LTV) be adjusted to 0% on all Aave deployments.

Part of the proposal released on April 2 suggests that sDAI incentives be removed from the Merit program, effective from Merit Round 2 and beyond.

This action aims to counteract MakerDAO’s recent aggressive D3M plan, which rapidly expanded the DAI credit line from zero to an estimated 600 million DAI within a month, potentially reaching 1 billion DAI soon.

The proposal seeks to reduce potential risks while minimally impacting users, given that just a fraction of DAI deposits serve as collateral on Aave, and users can readily switch to USD Coin (USDC $1.00) or Tether (USDT $1.00) as alternative collateral options.

Mark Zeller, founder of the Aave Chan Initiative, proposes changes to the Source: Aave 

The proposal provides an example of risky minting practices on a smaller scale, such as with Angle’s AgEUR (EURA), which was minted into EULER and was hacked within a week.

Angle, an overcollateralized stablecoin protocol, and AgEUR, a decentralized euro stablecoin, exemplify the dangers of DAI’s stablecoin depegging when utilized as loan collateral on AAVE.

Decentralized finance protocol MakerDAO has started preparing to launch its highly anticipated “Endgame” transformation, which will focus the platform “toward scalable resilience and sustainable user growth,” according to co-founder Rune Christensen.

In forum posts dated March 12, Christensen announced the commencement of “launch season” for the decentralized finance (DeFi) lending protocol, outlining a five-phase plan.

Phase 1, scheduled for mid-2024, involves engaging an external marketing firm to rebrand the operation into a more straightforward and enjoyable concept.

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The ultimate goal of the Endgame is to scale the protocol’s decentralized stablecoin, DAI, from its current $4.5-billion market capitalization to “100 billion and beyond,” on par with rival Tether’s USDT.

MakerDAO will redenominate each Maker (MKR $3,712) token into 24,000 NewGovTokens. Additionally, NewStable token holders not residing in the United States can also farm 600 million NewGovTokens annually.

On March 6, Eigenlayer flipped lending giant Aave to become the second-largest DeFi protocol, commanding $11.5 billion in total value locked (TVL), per DefiLlama — second only to Ethereum liquid staking protocol Lido.

Aave, meanwhile, has over 5,700 daily active users, while Lido has under 430, according to Token Terminal data.