Marc Zeller, the founding father of the Aavechan Initiative, has proposed to the decentralized autonomous group (DAO) overseeing Aave to take away DAI stablecoin’s collateral standing throughout the protocol’s lending ecosystem.

This transfer is available in response to MakerDAO’s proposal to allocate 600 million DAI into the fast-rising artificial greenback USDe and staked USDe (sUSDe) by way of the DeFi lending protocol Morpho Labs.

MakerDAO’s proposal

An evaluation by Block Analitica, a outstanding MakerDAO advisory council member, highlighted the sturdy person demand for USDe-backed lending swimming pools throughout the MakerDAO ecosystem. In response to the agency, this demand is primarily fueled by the engaging yield-earning prospects of USDe and the chance to accumulate ENA tokens.

The evaluation recommended a strategic give attention to larger leverage USDe swimming pools, significantly these with LLTV ratios of 86% and 91.5%, accompanied by a proportionally bigger allocation of DAI.

Ethena USDe is an artificial greenback supported by a number of stakeholders throughout the group. The digital asset has garnered important consideration from each retail and institutional merchants owing to its spectacular annual yield potential, reaching as much as 27% at a sure level.

Regardless of its attract, some crypto group members have voiced considerations regarding Ethena’s threat profile.

Nonetheless, Seraphim Czecker, Ethena’s Head of Progress, expressed satisfaction with Ethena’s development, affirming that it aligns with inside projections. As of the press time, the entire market capitalization of USDe stands at $1.6 billion. Aave founder Stani Kulechov known as the state of affairs a “Very dangerous transfer for DeFi.”

‘Contagion dangers’

Zeller defined that his proposal was essential to “mitigate potential contagion dangers for the Aave customers.”

In response to him, MakerDAO’s newest resolution would possibly heighten the danger of using DAI as collateral. He additional harassed that an Ethena’s failure may profoundly influence DAI, doubtlessly resulting in contagion dangers.

He wrote:

“With the potential extension of this credit score line to 1 billion DAI within the close to time period, the unpredictability of future governance choices by MakerDAO raises considerations concerning the inherent threat nature of DAI as collateral.”

Consequently, he proposed that Aave lowers the danger of contagion by setting the DAI loan-to-value ratio (LTV) to 0% throughout all variations of the Aave protocol. Moreover, he recommended eradicating staked DAI boosters from the benefit program ranging from the Advantage Spherical 2 and subsequent rounds.

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