The Aave Risk Framework Committee (ARFC) has put forward a proposal to adjust the risk parameters related to the MakerDAO stablecoin, DAI. The proposal aims to update the risk parameters specifically for DAI in order to minimize potential risks associated with the issuance policy of the stablecoin. By implementing these changes, Aave seeks to address concerns about MakerDAO’s governance decisions and the potential extension of the credit line for DAI to 1 billion DAI. The proposal suggests adjusting DAI’s loan-to-value ratio (LTV) to 0% across all Aave deployments and removing sDAI incentives from the Merit program, effective from Merit Round 2 onwards. This initiative is a response to MakerDAO’s recent aggressive actions, particularly their D3M program, which has seen a rapid increase in the credit line for DAI within a short period.
The proposal aims to mitigate risks associated with liquidity injections in a non-battle-tested protocol with a “hands-off” risk management ethos and no safety module risk mitigation feature. Aave has had past encounters with the consequences of reckless minting policies, such as Angle’s AgEUR minted into EULER, which was hacked within a week. This highlights the potential dangers of using DAI as loan collateral on Aave and the need to prevent stablecoin depegging scenarios to safeguard the stability and integrity of the Aave protocol. Despite these challenges, the proposal aims to address potential risks without significantly impacting Aave’s user base, as only a small fraction of DAI deposits are currently utilized as collateral on the platform. Users also have alternative collateral options like USDC or USDT, providing liquidity and flexibility.
In a separate development, MakerDAO is considering a proposal to invest $600 million in DAI into USDe and its staked version, sUSDe. The proposal, presented in a community forum post by MonetSupply from Block Analitica, a risk intelligence firm for DeFi, aims to leverage the capabilities of the DeFi lending protocol developed by Morpho Labs. The proposal outlines various reasons for investing in USDe and sUSDe, including user preferences for certain financial products and leverages within the DeFi space. It also highlights financial and strategic benefits such as significant 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 suggests setting MakerDAO’s USDe exposure limit at $600 million, with the potential to increase as Ethena’s platform expands. To ensure financial stability, the investment would be capped at $800 million to protect against substantial losses. This proposal aims to explore new opportunities for MakerDAO to diversify its investments and explore different DeFi platforms while ensuring the safety and security of its assets. By investing in USDe and sUSDe, MakerDAO aims to benefit from the financial and strategic advantages outlined in the proposal and potentially contribute to the growth and development of the DeFi ecosystem.
