MakerDAO Cuts Off Its AAVE-DAI Direct Deposit Module
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The Maker Protocol's maximum borrow rate has been temporarily set at 0. The Aave D3M module is turned off with a borrowing rate of 0 and will not mint new DAI in Aave's lending market.
The Two Proposals
On June 14, DeFi platform Aave proposed a solution to "mitigate risk to Aave v2 markets relating to stETH/ETH price variation." The plan aims to bring the stETH market to a halt, raising the stETH liquidation barrier to 90% and putting a stop to ETH borrowing. The current liquidation threshold (LT) for stETH at Aave is 81 percent, which was just raised on May 19. The increase in stETH's LT level was accompanied by Aave governance freezing UST on Aave v2 and lowering the loan-to-value (LTV) on stETH to 69 percent.
Financial Modeling Platform
The Aave idea was started by the team at financial modeling platform Gauntlet.
"[Aave's] existing market liquidity is very likely sufficient to handle predicted liquidations in the protocol," they wrote.
Adding to that, they said that no immediate parameter modifications or risk mitigations were required. However, given the current state of the crypto market, the precaution was intended to protect Aave's decentralized finance platform from a liquidation spiral.
However, in response to Aave's suggestion, Maker's Risk Core Unit (RISK-001) proposed temporarily disabling the Aave DAI Direct Deposit Module, which went into effect today, June 17. Aave's governance proposal to raise the stETH liquidation threshold to 90% as defined by the Risk Core Unit as an "unacceptable risk to the Maker Protocol."