Aave Reduces MakerDAO’s DAI Collateral After Proposal to Completely Eliminate It

Aave, the largest lending protocol in decentralized finance (DeFi), is reducing the amount of MakerDAO’s DAI stablecoin allowed as collateral on concerns Maker has become more risky after it added Ethena’s USDe as backing for DAI.

Aave is decreasing the loan-to-value (LTV) ratio of DAI and sDAI by 12 percentage points, bringing it down to 63%, according to a post on the protocol’s governance forum.

The decision comes after Marc Zeller, founder of the Aave Chan Initiative, proposed to completely remove DAI as collateral on Aave after MakerDAO approved an executive proposal, which let investors borrow $100 million of DAI against USDe and sUSDe (staked USDe), via another lending protocol, Morpho.

“LTV goes down a bit but much higher than zero, DAI stays in Aave, we move on. Onwards,” Zeller said on X.

The decision comes following a detailed analysis conducted by Chaos Labs, which said that Ethena’s model “introduces unprecedented quantitative considerations in the DeFi space.”

That, coupled with “the minimal revenue DAI collateral brings to Aave,” means that “Aave could decide to reduce exposure to DAI as collateral,” Chaos Labs said.

Aave governance decided to follow Chaos Labs’s “Conservative” recommendation rather than its “Aggressive” one, which would have reduced DAI’s LTV to 0%.