Aave Unveils Measures to Safeguard Against MakerDAO's Aggressive Expansion

Table of Contents

• Aave's Response to DAI Expansion
• Addressing MakerDAO's D3M Plan
• Community Alignment and Governance
• A Critical Moment for DeFi

Aave DAO has made certain moves against MakerDAO that have ignited concerns within the DeFi community, signaling a potential rift that could fragment the ecosystem. 

Aave's Response to DAI Expansion

Lending protocol Aave has launched a proactive strategy to address the risks associated with MakerDAO's rapid expansion of the DAI stablecoin. The Aave Risk Framework Committee (ARFC) proposes adjustments to the risk parameters of DAI, aiming to safeguard the protocol against potential vulnerabilities.

The proposal, initiated by the Aave Chan Initiative (ACI) team, suggests a significant adjustment to DAI's loan-to-value ratio (LTV) across all Aave deployments. Specifically, the proposal advocates for setting the LTV to 0%, a move intended to mitigate risks stemming from MakerDAO's aggressive D3M plan.

Addressing MakerDAO's D3M Plan

MakerDAO's recent expansion, which saw its DAI credit line surge to an estimated 600 million DAI within a month, poses significant challenges to DeFi stability. By adjusting risk parameters and incentive structures, Aave aims to maintain stability within its ecosystem and protect its users' interests.

The proposed measures aim to minimize potential risks associated with DAI deposits on Aave, offering users alternative collateral options such as USD Coin (USDC). This strategic shift reflects Aave's commitment to risk management and resilience in the face of market volatility.

Additionally, the proposal recommends removing sDAI incentives from the Merit program, effective from Merit Round 2 onwards, to reduce exposure to DAI-related risks while minimizing disruption to users.

Community Alignment and Governance

Recent actions by Aave's DAO underscore the organization's commitment to governance integrity. Moves against MakerDAO highlight Aave's efforts to preserve the cohesion of its community.

Marc Zeller, the founder of ACI, emphasizes the DAO's autonomy in redistributing profits and optimizing incentives to benefit the broader Aave ecosystem. Zeller claimed that Gauntlet has not proven to be necessary for Aave.

As for cutting Morpho users from its airdrop, he said,

“Aave DAO is free to redistribute their net profits as they see fit. Merit is designed to incentivize [user] behaviors benefiting the Aave DAO the most.”

A Critical Moment for DeFi

This development highlights a critical juncture for DeFi, emphasizing the importance of fostering open collaboration rather than creating isolated ecosystems. The implications of such conflicts extend beyond individual protocols, potentially stifling the sector's growth and innovation.

Observers outside the conflict between Aave and MakerDAO have expressed apprehension over the potential ramifications. Gnosis co-founder Martin Köppelmann emphasized the significance of interdependency within DeFi, warning against the consequences of losing shared incentives that ensure stability and progress.

Matt Fiebach, a research analyst at Blockworks, echoed these sentiments, expressing concern over the possibility of DeFi devolving into walled gardens. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.