- The relationship between MakerDAO and Aave DAO has become increasingly strained.
- A recent Aave DAO proposal could sever all remaining ties with MakerDAO.
- The proposal comes in response to a recent controversial MakerDAO proposal to bet big on USDe.
As competition heats up in the DeFi space so are tensions. In recent months, these tensions have risen between MakerDAO, the body governing DAI, the largest decentralized stablecoin and Aave, a leading decentralized lending protocol.
While both projects have collaborated in the past, business interests have begun to collide. MakerDAO, for one, is making new forays into lending with Spark Protocol and recent partnerships with Morpho Blue. At the same time, Aave has recently launched its own decentralized stablecoin, GHO.
Amid the growing conflicts of interest, a recent Aave proposal threatens to sever any remaining strings holding both projects together. The proposal comes in response to MakerDAO’s plans to back a significant portion of DAI with Ethena Labs’ recently launched “synthetic dollar” offering, USDe.
Aave Set to Drop DAI as Collateral?
In a Tuesday, April 2 proposal, Aave-Chan Initiative Founder Marc Zeller asserted that Aave should no longer support DAI as collateral on the lending platform.
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Citing the recent controversial MakerDAO proposal to allocate up to 1 billion DAI to be collateralized by USDe via Morpho Blue, Zeller argued that DAI governance actions were becoming increasingly aggressive and unpredictable, necessitating an evaluation of the risk of holding DAI as collateral to avoid possible contagion risks.
"The unpredictability of future governance decisions by MakerDAO raises concerns regarding the inherent risk nature of DAI as collateral. These liquidity injections are done in a non-battle-tested protocol with a 'hands off' risk management ethos and no safety module risk mitigation feature."
So far, many in the Aave community appear to align with Zeller’s view, judging from the forum conversations. Commenting on the proposal, Aave Founder Stani Kulechov called for the “offboarding of DAI from all the Aave markets,” stressing concerns over MakerDAO’s perceived risk-on direction.
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"Personally I am in full favour for offboarding DAI from all the Aave markets completely. At this point I see little value for the Aave DAO with the new risk direction MakerDAO is adopting. Would suggest a Temp Check for full offboarding. The offboarding process should start immediately in case of favorable outcome."
The recent proposal is the second sign of a growing rift between the Aave DAO and MakerDAO in as many months.
Simmering Tensions
In February 2024, Zeller proposed Merit, a rewards program to incentivize actions that benefited the Aave DAO. While reward programs are common in the crypto space, Merit brings a twist: penalizing users for using competing protocols, specifically Morpho Aave optimizers built by Morpho Labs, the same firm that MakerDAO has recently partnered with.
The gripe? Zeller claimed that Morpho’s middleware stole millions in revenue from Aave. Morpho Labs co-founder and CEO Paul Frambot, however, denied these claims. According to Frambot, Morpho generated about $7.5 million in interest for Aave. At the same time, he argued that Aave DAO risked losing revenue without the efficiency boosts offered by Morpho.
Though Merit would eventually pass the governance vote, it received pushback from some who suggested it went against DeFi ethos. These critics included Sam MacPherson, co-founder of Phoenix Labs, a key contributor to Spark, the lending-focused MakerDAO SubDAO.
Reacting to the Merit proposal, MacPherson had initially threatened to recommend that MakerDAO pull a 1 million DAI annual contribution to Aave v3 development.
"If Aave wants to start incentivizing zero/negative sum behaviour like this I'm going to recommend that the current 1m / year DAI funding for the Aave V3 code be pulled. Morpho is a completely new protocol and incentivizing against user choice is pretty rediculous. Users should be free to choose what they prefer."
On the Flipside
- Block Analitica founder “MonetSupply”, who authored the controversial MakerDAO proposal, has pushed back against the negative reactions. According to MonetSupply, detractors failed to study the proposal before bashing it.
- The controversial MakerDAO proposal has only just been put up for executive vote and has yet to pass at the time of writing.
- Aave DAO is not the only DeFi project reevaluating DAI’s risk proposition following the recent MakerDAO proposal. Starknet-based Nostra Finance has also unveiled plans to disable DAI as collateral.
- Aave DAO also intends to onboard USDe on Aave v3 on Ethereum, per a March 19 temperature check vote.
Why This Matters
MakerDAO and Aave DAO govern two of the biggest projects in DeFi. A feud between both protocols could lead to difficulties in user experience for both projects.
Read this for more on the MakerDAO USDe debacle:
MakerDAO Bashed as “Reckless” for Planned $1B DAI Bet on USDe
Stay up-to-date with the latest on the Ethereum Layer 3 debate:
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