Aave Introduces Measures to Mitigate MakerDAO DAI Expansion Risks

Aave, a prominent lending protocol, has initiated a proposal through its Aave Risk Framework Committee (ARFC) to address potential risks stemming from MakerDAO’s aggressive expansion of the DAI stablecoin.

The proposal, spearheaded by the Aave Chan Initiative (ACI) team, advocates for adjusting the loan-to-value ratio (LTV) of DAI to 0% across all Aave deployments. Additionally, it suggests removing sDAI incentives from the Merit program starting from Merit Round 2.

This move comes in response to MakerDAO’s rapid expansion of the DAI credit line, which has grown from zero to an estimated 600 million DAI within a month, with projections to reach 1 billion DAI soon.

The proposed adjustments aim to mitigate potential risks with minimal disruption to users. Since only a small portion of DAI serves as collateral on Aave, users have the flexibility to switch to alternative collateral options such as USD Coin (USDC) or Tether (USDT).

The proposal highlights the risks associated with unstable collateral practices, citing examples like Angle’s AgEUR (EURA), which was minted into EULER and subsequently hacked within a week.

Meanwhile, MakerDAO is gearing up to launch its “Endgame” transformation, aiming to scale the DAI stablecoin to over $100 billion in market capitalization. The initiative involves rebranding efforts and redenomination of Maker (MKR) tokens into NewGovTokens, among other measures.

Eigenlayer recently surpassed Aave to become the second-largest DeFi protocol by total value locked (TVL), with Aave maintaining over 5,700 daily active users compared to Lido’s under 430, according to Token Terminal data.