Aave, the lending protocol, has recently introduced a proposal to adjust the risk parameters of the stablecoin Dai (DAI) through its newly formed Aave Risk Framework Committee (ARFC). The proposal suggests setting the loan-to-value ratio (LTV) of Dai to 0% on all Aave deployments. Additionally, the proposal recommends removing the sDAI incentives from the Merit program, starting from Merit Round 2 and onwards. This move by the Aave Chan Initiative (ACI) team is in response to MakerDAO’s aggressive D3M plan, which rapidly increased the DAI credit line from zero to an estimated 600 million DAI within a month, with the potential to reach 1 billion DAI soon.
The aim of the proposal is to mitigate potential risks while minimizing the impact on users. Since only a small fraction of DAI deposits serve as collateral on Aave, users have the option to easily switch to alternative collateral options such as USD Coin (USDC) or Tether (USDT).
The proposal highlights the risks associated with minting practices on a smaller scale, using the example of Angle’s AgEUR (EURA), which was minted into EULER and subsequently hacked within a week. Angle, an overcollateralized stablecoin protocol, and AgEUR, a decentralized euro stablecoin, illustrate the risks of DAI’s stablecoin depegging when used as loan collateral on Aave.
Meanwhile, MakerDAO is preparing for its highly anticipated “Endgame” transformation, which aims to make the platform more resilient and promote sustainable user growth. Co-founder Rune Christensen announced the start of the “launch season” for the decentralized finance (DeFi) lending protocol, outlining a five-phase plan. The first phase, set for mid-2024, involves engaging an external marketing firm to rebrand the operation into a more user-friendly concept.
The ultimate goal of the Endgame is to scale the decentralized stablecoin DAI from its current $4.5 billion market capitalization to “100 billion and beyond,” similar to Tether’s USDT. MakerDAO plans to redenominate each Maker (MKR) token into 24,000 NewGovTokens and allow non-US NewStable tokenholders to farm 600 million NewGovTokens annually.
On March 6, Eigenlayer surpassed Aave to become the second-largest DeFi protocol, with $11.5 billion in total value locked (TVL), according to DefiLlama. Aave currently has over 5,700 daily active users, while Eigenlayer has less than 430, as per Token Terminal data.