The Aave protocol has recently introduced a proposal aimed at enhancing user protection against market volatility, specifically targeting the price discrepancies between Ethena’s USDe and Tether’s USDt. This proposal, co-authored by Chaos Labs and LlamaRisk, seeks to stabilize borrowing and lending operations on the platform.
Background: Understanding Aave and USDE
AaveAAVE is a leading DeFi protocol, with a total locked value of $37 billion, facilitating risk-free borrowing and lending across various cryptocurrencies. Users can deposit assets into liquidity pools and earn interest or use them as collateral for borrowing. AaveAAVE operates on the AAVE token, which serves as a synthetic dollar stablecoin.
USDeUSDE is an innovative synthetic dollar stablecoin developed by Ethena. Unlike its counterpart, USDt, which relies on fiat reserves, USDe is backed by on-chain assets and derivatives, making it inherently more resilient to external shocks. Currently ranked third among stablecoins by CoinGecko, USDe boasts a market cap of $5.85 billion, trailing USDt and USD Coin.
The Proposal: Hardcoding USDE’s Price to USDt
AaveAAVE proposes hardcoding USDe’s price directly to USDt. By doing so, the protocol aims to align the sUSDe oracle with USDt pricing, ensuring seamless integration and mitigating potential disruptions caused by market fluctuations in USDe.
Community Reactions: Anticipated Backlash
The proposal has sparked mixed reactions from Aave users. Critics argue that hardcoding USDE’s price without addressing root risk factors may not sufficiently protect users. For instance, Hazbobo questioned the approach, expressing concerns about potential risks and edge cases. Another user pointed out that if Aave were to follow this precedent, it could as well peg directly to USD, avoiding secondary market deviations altogether.
Context: Aave’s Growth Trajectory
AaveAAVE’s growth trajectory is driven by expanding its service offerings. The protocol has recently delved into new markets such as BNB Chain, Scroll, ZKsync Era, and Etherifi. Plans also include integrating with Sonic, Mantle, Ethereum Layer 2 Linea, Bitcoin Layer 2 BOB, Spider Chain, and Aptos, contingent on community approval.
Ethena’s Roadmap
EthenaENAsung 17% after the release of its 2025 roadmap. The roadmap outlines integration with Telegram, introducing a new dollar savings product, denoted as iUSDe. This initiative will integrate sUSDe into Telegram, offering users a payment and savings app based on sUSDe.
Conclusion
AaveAAVE’s proposal to hardcode USDE’s price represents a strategic move to address perceived risks in the volatile DeFi landscape. While the proposal aims to mitigate secondary market exposure, it also faces significant resistance from users who question its sufficiency in addressing root risk factors.
