Aave Proposes Changes to MakerDAO DAI Risk Parameters

Aave Proposal for DAI Risk Parameters Update

Aave, a leading lending protocol, has introduced a new proposal through its Aave Risk Framework Committee (ARFC) to adjust the risk parameters associated with the MakerDAO stablecoin, DAI.

Overview of the Proposal

• The proposal aims to update the risk parameters specifically for DAI to mitigate potential risks related to the issuance policy of the stablecoin.
• The Aave Chan Initiative (ACI) team, led by Mark Zeller, has recommended setting DAI’s loan-to-value ratio (LTV) to 0% across all Aave deployments.
• The proposal also suggests removing sDAI incentives from the Merit program starting from Merit Round 2.

Background and Rationale

The proposal is a response to MakerDAO’s aggressive D3M program, which has rapidly increased the credit line for DAI, raising concerns about governance decisions and potential risks associated with DAI as collateral.

The initiative aims to address risks linked to liquidity injections in protocols without robust risk management features, emphasizing the importance of safeguarding the stability and integrity of the Aave protocol.

Impact and Mitigation Strategies

• The proposal seeks to mitigate risks without significantly affecting Aave’s user base, as only a small fraction of DAI deposits are currently used as collateral.
• Users have alternative collateral options like USDC or USDT for added liquidity and flexibility.

MakerDAO Proposal for Investment in USDe and sUSDe

Overview of the Proposal

MakerDAO is evaluating a proposal to invest $600 million in DAI into USDe and its staked version, sUSDe, as outlined by MonetSupply from Block Analitica.

Rationale and Benefits

• The proposal aims to leverage the capabilities of the DeFi lending protocol developed by Morpho Labs.
• It highlights user preferences for financial products and leverages within the DeFi space, emphasizing benefits for using USDe and sUSDe collateral on Morpho.
• Financial and strategic advantages include reducing liquidity risk, boosting Ethena’s insurance fund revenue, and enhancing investment security over time.

The proposal suggests setting MakerDAO’s USDe exposure limit at $600 million initially, with the potential for expansion as Ethena’s platform grows, capped at $800 million for financial stability.