Aave and MakerDAO have had a long-running rivalry that recently reopened after DAI indirectly added exposure to a controversial stablecoin.
The once-symbiotic relationship between decentralized stablecoin issuer MakerDAO and lending protocol Aave is fraying.
That depeg rang alarm bells for MakerDAO, which shortly after requested an “urgent executive proposal to mitigate risks to the protocol” to address its. At the time, Maker also moved to eliminate its exposure to Aave, stating its “overall risk-reward of depositing funds into the D3M are not favorable under current conditions.”
The smaller-than-expected reduction came after a detailed analysis from Chaos Labs called for a more conservative approach. Cex.io’s Sarwate says: When there’s more buying demand, the funding rate is positive, and those with long positions pay short sellers, while when supply outstrips demand, the opposite happens. Since Ethena’s launch, funding rates have mostly been positive, allowing USDe holders to earn double-digit yields through what has been a “delta neutral” trade.
John Lo, a former key contributor at popular decentralized exchange SushiSwap and now head of digital assets at cryptocurrency fund Recharge Capital, told Cointelegraph that Aave’s move to reduce the loan-to-value ratio was prudent but noted that “removing DAI as collateral completely would be extreme.”
On top of that, Lo added that slippage incurred on selling staked ETH over low liquidity should also be considered, as even a 5% decrease in a stablecoin’s net asset value “is enough to trigger a crisis in confidence.”
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