Controversial Exposure of MakerDAO’s $600 Million USDe Exposes Risk; Aave Founder Criticizes Recklessness and Suggests Disabling DAI Collateral Function

Controversial Exposure of MakerDAO's $600 Million USDe Exposes Risk; Aave Founder Criticizes Recklessness and Suggests Disabling DAI Collateral Function

Controversial Exposure of MakerDAO's $600 Million USDe Exposes Risk; Aave Founder Criticizes Recklessness and Suggests Disabling DAI Collateral Function

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MakerDAO expands USDe exposure
Aave co-founder proposes to remove DAI collateralization feature
MakerDAO risk control team responds to criticism

Last week, MakerDAO’s lending protocol Spark distributed 100 million DAI liquidity to the sUSDe/DAI and USDe/DAI markets on Morpho Blue through Morpho Blue. (USDe is a stablecoin issued by Ethena)

However, in less than a week, MakerDAO created a new proposal on April 1st, aiming to set the DDMline hard cap to 1 billion DAI, while increasing the supply limit and DAI distribution on the Spark DAI Vault accordingly. This means that if the proposal is approved, an additional 500 million DAI will be allocated in the sUSDe/DAI and USDe/DAI markets on Morpho Blue, bringing the total allocation to 600 million DAI, with the ability to expand this limit up to 1 billion DAI over time and with changing conditions. However, this move has drawn backlash from other DeFi protocols.

MarcZeller, co-founder of the lending protocol Aave, criticized MakerDAO in the community for exposing a large amount of asset risk on a protocol that has not undergone rigorous real-world testing, relies on fragile oracles, and lacks risk mitigation measures. He deemed this decision reckless and hasty, and issued a proposal to reduce DAI’s LTV to 0%. If this proposal is passed, it means that DAI will no longer be accepted as collateral in the Aave protocol.

In response to this, a member of MakerDAO’s risk control team, monetsupply.eth, stated that Ethena and the Spark DAI Vault have multiple layers of protection to safeguard DAI users. Therefore, Maker’s backup capital (currently around 61 million DAI) will not be utilized until Ethena suffers significant losses or experiences a truly catastrophic event. Only then will the reserve MKR tokens be used.

As for why there is an increase in exposure in sUSDe and USDe, monetsupply.eth explained that the current high leverage environment makes the risk/reward of over-collateralized exposure to futures basis favorable. Higher income allows Maker to expand the reserves in its treasury, increasing flexibility over time and creating additional primary capital buffers. Finally, monetsupply.eth stated:

“DAI is still the boring stablecoin you know and love. Maker is committed to prudent risk management and user well-being. Thank you to everyone who raised genuine concerns and provided constructive feedback.”