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Aave Proposes Reduction of DAI LTV Ratio to Counter MakerDAO’s Rapid Expansion

Aave proposes to reduce the DAI LTV ratio to 0% to counter MakerDAO’s rapidly expanding DAI credit line.

Aave, a leading lending protocol in the DeFi ecosystem, has initiated a new proposal through the Aave Risk Framework Committee (ARFC) to adjust the risk parameters associated with the stablecoin DAI.

In the midst of changes and innovations within the DeFi ecosystem, Aave continues to play a key role, despite Eigenlayer recently surpassing Aave to become the second largest DeFi protocol in terms of Total Value Locked (TVL).

Proposal of the Aave Chan Initiative to mitigate the risk posed by DAI

The Aave Chan Initiative (ACI) has presented this proposal, aiming to adjust the Loan-to-Value (LTV) ratio of DAI to 0% across all Aave deployments.

This move is a direct response to MakerDAO’s aggressive D3M plan, which has seen the DAI credit line expand from zero to an estimated 600 million DAI in one month, with the potential to reach 1 billion DAI soon.

The proposal seeks to minimize the impact on users, as in reality, only a small fraction of DAI deposits serve as collateral on Aave, and users can easily switch to USDC or USDT as alternative collateral options. It also raises concerns about risky minting practices, illustrated by the example of the hack of minted AgEUR (EURA) in EULER.

The arrival of Ethena Labs’ ‘synthetic dollar’ USDe has also raised concerns among many community members due to its innovative and perceived risky operation.

MakerDAO’s ‘Endgame’ Transformation

Meanwhile, MakerDAO is preparing for its ‘Endgame’ transformation, aiming to strengthen the resilience and sustainable growth of its platform’s users. This five-phase plan, announced by co-founder Rune Christensen, aims to increase the market capitalization of the decentralized stablecoin DAI, currently at $4.5 billion, to ‘100 billion and beyond’.

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