Aave considers dropping DAI as collateral over contagion concerns from MakerDAO’s USDe move

Marc Zeller, the laminitis of the Aavechan Initiative, has proposed to the decentralized autonomous enactment (DAO) overseeing Aave to region DAI stablecoin’s collateral presumption wrong the protocol’s lending ecosystem.

This determination comes successful effect to MakerDAO’s proposal to allocate 600 cardinal DAI into the fast-rising synthetic dollar USDe and staked USDe (sUSDe) done the DeFi lending protocol Morpho Labs.

MakerDAO’s proposal

An analysis by Block Analitica, a salient MakerDAO advisory assembly member, highlighted the robust idiosyncratic request for USDe-backed lending pools wrong the MakerDAO ecosystem. According to the firm, this request is chiefly fueled by the enticing yield-earning prospects of USDe and the accidental to get ENA tokens.

The investigation suggested a strategical absorption connected higher leverage USDe pools, peculiarly those with LLTV ratios of 86% and 91.5%, accompanied by a proportionally larger allocation of DAI.

Ethena USDe is simply a synthetic dollar supported by respective stakeholders wrong the community. The integer plus has garnered important attraction from some retail and organization traders owing to its awesome yearly output potential, reaching up to 27% astatine a definite point.

Despite its allure, immoderate crypto assemblage members person voiced concerns regarding Ethena’s hazard profile.

However, Seraphim Czecker, Ethena’s Head of Growth, expressed restitution with Ethena’s growth, affirming that it aligns with interior projections. As of the property time, the full marketplace capitalization of USDe stands astatine $1.6 billion. Aave laminitis Stani Kulechov called the concern a “Very risky determination for DeFi.”

‘Contagion risks’

Zeller explained that his connection was indispensable to “mitigate imaginable contagion risks for the Aave users.”

According to him, MakerDAO’s latest determination mightiness heighten the hazard of utilizing DAI arsenic collateral. He further stressed that an Ethena’s nonaccomplishment could profoundly interaction DAI, perchance starring to contagion risks.

He wrote:

“With the imaginable hold of this recognition enactment to 1 cardinal DAI successful the adjacent term, the unpredictability of aboriginal governance decisions by MakerDAO raises concerns regarding the inherent hazard quality of DAI arsenic collateral.”

Consequently, helium projected that Aave lowers the hazard of contagion by mounting the DAI loan-to-value ratio (LTV) to 0% crossed each versions of the Aave protocol. Additionally, he suggested removing staked DAI boosters from the merit programme starting from the Merit Round 2 and consequent rounds.

The station Aave considers dropping DAI arsenic collateral implicit contagion concerns from MakerDAO’s USDe move appeared archetypal connected CryptoSlate.