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Dai’s Perceived Risk Growth Sparks MakerDAO-Aave DeFi Conflict

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Dai's Perceived Risk Growth Sparks MakerDAO-Aave DeFi Conflict

The relationship between MakerDAO and Aave, two major players in the decentralized finance (DeFi) sector, is becoming strained as new innovations introduce risks to the protocols. A controversial stablecoin, Ethena’s USDe, and Maker’s Direct Deposit Dai Module (D3M) are at the center of the controversy. MakerDAO initially launched its Dai token in 2017 as an overcollateralized stablecoin backed by Ether. It later expanded to back DAI with multiple cryptocurrencies, including centralized stablecoins like USD Coin (USDC). Aave, Is a peer-to-peer lending platform that integrated DAI as collateral early on and has collaborated with MakerDAO throughout the DeFi boom of 2021.

Tensions arose during the 2022 bear market when multiple DeFi protocols collapsed, including Terra, which led to the collapse of lending platforms Celsius and BlockFi. MakerDAO voted to temporarily cut off Aave’s D3M to protect itself. The USDC stablecoin briefly lost its peg after the collapse of Silicon Valley Bank, which held its reserves, causing concerns for MakerDAO, which had over $3.1 billion exposure to USDC at the time. MakerDAO decided to eliminate its exposure to Aave as well due to unfavorable risk-reward conditions.

MakerDAO then purchased real-world assets like U.S. Treasurys to strengthen confidence in its DAI stablecoin. The decision to extend credit back into stablecoins, including the controversial USDe stablecoin, has raised concerns among market participants. The tension between MakerDAO and Aave increased when MakerDAO introduced Spark Protocol, which competes directly with Aave’s lending platform, and Aave launched GHO, a stablecoin that rivals DAI. Neither platform has posed a significant threat to the other in terms of value locked.

In April 2024, AaveDAO debated limiting the amount of MakerDAO’s DAI allowed as collateral on its platform, causing further tension between the two protocols. Though the debate was settled with a reduction in the loan-to-value ratio, some proposed removing DAI entirely as collateral. The controversy surrounding MakerDAO’s exposure to USDe and Aave’s considerations to remove DAI as collateral have raised concerns about the stability and security of these protocols.

Critics argue that USDe’s structure and the potential for under-collateralization during a bear market pose risks to the stability of DAI. They also highlight external risks related to the oracle used to keep USDe pegged to ETH and potential liquidation and slippage risks. Others believe these risks are not unique to USDe and that the discussions and debates surrounding these issues demonstrate the strength of governance in the decentralized finance space.

The recent conflict between MakerDAO and Aave was resolved with a loan-to-value reduction for DAI on Aave. The future of USDe and its competition with DAI and GHO remains uncertain. The evolving landscape of DeFi suggests that MakerDAO and Aave may cross paths again in the future.

19 thoughts on “Dai’s Perceived Risk Growth Sparks MakerDAO-Aave DeFi Conflict

  1. The discussions and debates may show the strength of governance in DeFi, but they also highlight the lack of unity and trust between these protocols. 🤷‍♀️ It’s a worrisome situation. 😔

  2. It’s great to see the strength of governance in the decentralized finance space, with discussions and debates happening around important issues. This shows the commitment to transparency and improving the stability of protocols.

  3. The DeFi sector is an ever-evolving landscape, and the conflict between MakerDAO and Aave is just another testament to that. I’m excited to see how these protocols will continue to shape the future of finance!

  4. I never realized that the relationship between MakerDAO and Aave could be so complex. The decentralized finance space is constantly evolving, and it’s exciting to witness these interactions and developments.

  5. The loan-to-value reduction for DAI on Aave is just a band-aid solution. 🩹 This conflict between MakerDAO and Aave is far from resolved. ⚔️

  6. I can see why MakerDAO would be concerned about the collapsing DeFi protocols in the bear market. It makes sense that they wanted to protect themselves and temporarily cut off Aave’s D3M. Safety first! 🛡️

  7. Critics are right to be concerned about the risks posed by USDe and its potential under-collateralization. 😰 This could seriously destabilize the entire DeFi space. 💔

  8. The tension keeps rising! The introduction of Spark Protocol and Aave’s GHO stablecoin adds an interesting twist to their relationship. It’s like a DeFi competition!

  9. I’m glad the AaveDAO and MakerDAO were able to resolve their conflict with a loan-to-value reduction for DAI. Collaboration and compromise are key in this rapidly evolving DeFi world.

  10. The future of DeFi is uncertain, but that’s part of what makes it so intriguing. MakerDAO and Aave’s paths may cross again, and I can’t wait to see what they bring to the table in terms of innovation and collaboration.

  11. Concerns about under-collateralization are valid, but let’s not forget that the governance in the decentralized finance space is strong. I believe they will find solutions to ensure the stability of protocols like DAI.

  12. The complexities of the MakerDAO and Aave relationship are mind-boggling! It’s impressive to see how they navigate through challenges and find resolutions that benefit the DeFi community.

  13. The future of USDe and its competition with DAI and GHO is uncertain, but that just adds excitement to the DeFi landscape. Only time will tell how these protocols will continue to interact.

  14. It’s impressive that MakerDAO purchased real-world assets like U.S. Treasuries to strengthen confidence in DAI. That’s a smart move to ensure stability in their stablecoin. 💪

  15. Shoutout to MakerDAO and Aave for navigating through their differences and finding a resolution. Collaboration and compromise are key in such a rapidly growing and changing market.

  16. The debates surrounding DAI as collateral and the exposure to USDe are raising red flags. How can we trust these protocols if they can’t even agree on basic matters?

  17. The dynamic nature of the DeFi landscape is what makes it so exciting. The conflicts and resolutions between MakerDAO and Aave only contribute to the growth and development of the sector. Let’s embrace the journey!

  18. The DeFi space is full of twists and turns, and MakerDAO and Aave’s relationship is no exception. It’s interesting to see how innovation can introduce risks into protocols, but also spark important discussions. ⚡️

  19. MakerDAO and Aave crossing paths again in the future doesn’t sound promising. It feels like this strained relationship will continue to cause issues in the DeFi sector.

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