DAI’s perceived risk growth reignites DeFi conflict between MakerDAO and Aave

The once-harmonious relationship between decentralized stablecoin issuer MakerDAO and lending protocol Aave is deteriorating as tensions rise over new innovations in the decentralized finance (DeFi) sector. The controversy revolves around a controversial stablecoin called USDe and Maker’s Direct Deposit Dai Module (D3M). MakerDAO initially launched its Dai token as an overcollateralized stablecoin backed by Ether, but later allowed it to be backed by multiple cryptocurrencies, including centralized stablecoins like USDC. Aave, on the other hand, integrated DAI as collateral on its lending platform. However, during the 2022 bear market, the collapse of the Terra ecosystem and other major DeFi protocols put pressure on MakerDAO, leading it to temporarily cut off Aave’s D3M to protect itself. MakerDAO also faced risks related to its exposure to USDC and decided to eliminate its exposure to Aave. The tension between the two protocols escalated in 2024 when Aave considered removing DAI as collateral. Ultimately, the issue was settled with a reduction in the loan-to-value ratio. The controversy surrounding USDe, which aims to replicate a hedge fund strategy, has raised concerns among market participants. The future of USDe and its competition with MakerDAO’s DAI and Aave’s GHO stablecoin remains uncertain.