Aave Adjusts DAI Risk Parameters in Response to MakerDAO's Growth Strategy
Summary:
The lending protocol Aave (AAVE) has introduced a proposal by the Aave Risk Framework Committee (ARFC) to adjust the risk parameters of the Dai (DAI) stablecoin. This comes as a response to MakerDAO's recent D3M initiative which boosted the DAI credit line. The decentralised finance protocol MakerDAO is also preparing for its "Endgame" transformation to expand the protocol’s decentralized stablecoin, DAI. Additionally, Eigenlayer recently overtook Aave to become the second-largest DeFi protocol.
The lending protocol Aave (AAVE) has introduced a fresh proposal spearheaded by the Aave Risk Framework Committee (ARFC) to revise the risk parameters of the Dai (DAI) stablecoin. Originating from the Aave Chan Initiative (ACI) team, the suggestion is to modify DAI’s loan-to-value ratio (LTV) to 0% applied across all Aave deployments. The proposition put forth on April 2 recommends eliminating sDAI incentives from the Merit program starting from Merit Round 2. This measure is designed as a response to MakerDAO’s recent rigorous D3M initiative, which amplified the DAI line of credit from nothing to an approximate 600 million DAI within a one-month span, with a potential near prospect of reaching 1 billion DAI. The proposal aims to minimize potential risks while minimally affecting users, considering that only a small portion of DAI deposits are used as collateral on Aave, and users have the easy option of switching to USDC or USDT as alternate collateral options.
An illustration of risky minting practices on a minor scale can be seen with Angle’s AgEUR (EURA), which transformed into EULER and was infiltrated within a week. The overcollateralized stablecoin protocol Angle and its decentralized euro stablecoin AgEUR highlight the latent dangers of DAI’s stablecoin depegging when used as loan collateral on AAVE.
Decentralized finance protocol MakerDAO has laid groundwork for the induction of its eagerly awaited “Endgame” improvement that will center the platform “towards scalable resilience and viable user growth,” as per co-founder Rune Christensen. On March 12, Christensen proclaimed the inauguration of “launch season” for the DeFi lending protocol and fleshed out a five-stage plan. Scheduled for mid-2024, Phase 1 involves commissioning an external marketing agency to reshape the operation into a more comprehensible and user-friendly concept.
The primary objective of the Endgame is to expand the protocol’s decentralized stablecoin, DAI, from its present market capitalization of $4.5 billion to “100 billion and beyond,” vying with competitor Tether’s USDT. MakerDAO will re-coin each Maker (MKR) token into 24,000 NewGovTokens. Moreover, NewStable token holders residing outside the United States can farm an annual 600 million NewGovTokens.
As of March 6, Eigenlayer overtook lending behemoth Aave to secure the spot of the second-largest DeFi protocol, holding $11.5 billion in total value locked (TVL) as per DefiLlama — only Ethereum liquid staking protocol Lido is ahead. Meanwhile, Aave boasts over 5,700 active daily users, compared to under 430 for Lido, as indicated by Token Terminal data.
Published At
4/3/2024 11:00:35 AM
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