- Aave proposes hardcoding USDe’s price to match USDT to prevent liquidation risks from price fluctuations.
- A 5% drop in USDe’s value could risk $300 million in Aave-backed loans.
- The proposal faces community backlash, with concerns over unresolved structural risks and alternative solutions.
A new proposal on Aave suggests hardcoding the price of Ethena’s USDe to match Tether’s USDT. Chaos Labs and LlamaRisk co-authored the proposal, submitting it on January 3. The goal is to reduce risks from price fluctuations affecting Aave users.
LlamaRisk, a member of Ethena’s risk committee, supports aligning USDe’s value with USDT. The proposal emphasizes that this alignment would prevent disruptions from sudden price changes. By hardcoding USDe’s price to USDT, the protocol aims to improve stability.
Risk of USDe Price Fluctuations on Aave
Aave is currently the largest lending protocol within the decentralized finance (DeFi) ecosystem with 37 billion in total value locked. It lets users exchange and lend other cryptocurrencies without third parties. Some users lock their funds in smart contracts and receive passive income or make loans based on crypto assets.
Ethena’s USDe is a synthetic stablecoin backed by onchain assets and derivatives. Unlike Tether’s USDT, which uses fiat reserves, USDe depends on financial derivatives. Currently, USDe ranks as the third-largest stablecoin with a $5.85 billion market cap.
The proposal highlights a key risk related to USDe’s price drops. A 5% decrease in USDe’s value could put $300 million in Aave-backed loans at risk. Such a scenario might trigger mass liquidations, leading to forced collateral sales. To prevent this, the proposal recommends hardcoding USDe’s price to match USDT. This approach aims to shield users from unexpected liquidations caused by price volatility.
Community Raises Concerns Over Proposal
The proposal has sparked debates within the Aave community. Some users question whether hardcoding USDe’s price to USDT addresses the real risks. They believe the solution might not fully resolve deeper structural issues.
Aave community member Hazbobo expressed skepticism about the approach. He questioned the potential risks associated with linking USDe directly to USDT. Another user, ElliotNess, criticized the lack of detailed risk analysis in the proposal.
ElliotNess argued that hardcoding USDe to USDT might not be the best solution. He suggested that if hardcoding is necessary, pegging USDe directly to $1.00 might be more logical. The proposal is still in its early discussion phase. There is no formal voting process scheduled yet.
Aave and Ethena Continue Growth Despite Debate
Despite the ongoing discussions, AAVE’s token price has shown strong performance. It currently trades at $340, reflecting a 7% increase in the past 24 hours. Over the past year, AAVE has risen by 230%.
Aave has been expanding into new blockchain ecosystems, including BNB Chain and ZKsync Era. The platform plans to integrate with other networks like Spider Chain and Aptos in 2025.
Meanwhile, Ethena has unveiled its roadmap for 2025. The plan includes launching iUSDe, a wrapped version of sUSDe, offering a 10% yield. Ethena also aims to integrate sUSDe into Telegram for seamless payment and savings services.
