Why The Founder Of Aave Criticized MakerDAO

Journalist

• Ethenas USDe faced heavy criticism ‍following the MakerDAO transaction.‍
• Aave proposed delisting DAI as collateral for MakerDAO’s move.

Ethenas [ENA] ‌ So-called “synthetic dollars,” or USDe, are back in the spotlight after a recent agreement with a major bank. MakerDAO [MKR].

Deal offered 100 million Dai [DAI] ​ To farm USDe. Reportedly, 100 million DAI is about 2% of ​DAI backing. That’s fine.

Deal ⁤will eventually expand to 600 million DAI, putting 12% of DAI reserves at risk.

Marc Zeller is the founder of ⁢Aave, a lending protocol. [AAVE]called the move “reckless.” High-risk exposure This ⁤could have ripple ⁣effects on⁤ the entire market. ⁣

He said

“1B$DAI created out ‌of thin air (20% of ​total supply) in a⁣ non-battle-tested protocol Risk-free de-risking‌ is possible. Weak oracles within a month ) Assets that are hypersensitive to market conditions include:“What is the definition ⁤of recklessness?”

Zeller suggested removing DAI as collateral from the Aave protocol to protect it from MakerDAO’s “reckless”​ risks.

Ethena’s USDe has inherent risks

USDe has been the subject of controversy before.

In February, the artificial dollar caused⁣ a stir. It was directly marketed as a “stablecoin” with a 27% yield. Users ⁣dubbed it TerraLuna .

USD Coin is not the same as USD Coin [USDC]USDe⁣ is backed by various⁢ assets, including U.S. Treasury bills,‍ cash,⁣ and‍ other assets. Ethereum ⁢ [ETH].

These holdings are ETH pegged and short ETH hedges, which rely heavily on CEX (centralized exchange) liquidity.

Unfortunately, the USDe design ⁢was exposed to several ⁤risks. CEXes could collapse ‌like FTX. ⁣Also, ⁤funding rates could go negative during⁤ bear markets, impacting short ETH hedges.

Removing the USDe peg would have far-reaching ‌ripple effects.

Conor Ryder is Ethena’s Head of Research and he has‍ recognized⁢ the ‌risks. Emphasis is on the word “highlighted” ‌ ⁣In a worst-case scenario, Ethena’s insurance fund ‍could handle it.

The recent MakerDAO deal⁤ raises similar concerns in the‌ DeFi industry.

Andre Cronje, Founder of Fantom [FTM]The downward pressure was highlighted by. Assets are a‍ good investment.

Margin/collateral is liquidated​ and the asset is no longer collateralized.

He repeated: “It works until it doesn’t.”

Another user ‍ You can assert your right to claim,

“Issuing billions ⁣of dollars of ‌DAI to farmers USDe is asking for trouble.”

Guy Young, founder of Ethena Labs, responded to Cronje. You can ⁣also read about how important this is in our article. USDe⁢ dismissed concerns about the MakerDAO deal ⁢but⁢ acknowledged the risks involved.

You are right to point out the risks that are‌ certainly present here.

It remains to be seen whether, in addition to Aave’s risk mitigation measures, there will also be an adjustment to MakerDAO’s allegedly “reckless” move.