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Maker Cuts Off Aave from its DAI Supply in Fear of Celsius Crash
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MakerDAO recently voted out the decision to cut off Aave from its service that allows the creation of DAI tokens. According to the project, it has concerns about the Celsius liquidity crisis, as it could spell doom for the entire ecosystem, which is why MakerDAO concluded that Aave should be isolated.
The Maker Governance has voted to temporarily disable the @AaveAave DAI Direct Deposit Module (D3M).
This change is available for execution on June 17 2022 21:03 UTC.
— Maker (@MakerDAO) June 15, 2022
MakerDAO made the decision as a means of mitigating the protocol’s exposure to Aave’s lending and staking platform as a precaution – in case Celsius truly fails and implodes the stETH peg. stETH is a token that is used to represent the amount of Ethereum (ETH) coins staked within the Lido staking platform.
However, over the last several weeks, this peg to Ethereum has been very unstable, and the stETH price is currently 6% below Ethereum’s own price, which should not be the case. Now, as some may know, there have already been several cases of tokens losing their pegs over the last few months. In early April, the Waves-based stablecoin lost its peg to the US dollar, causing the stablecoin, WAVES token, and the entire network to go down, and lose all of the value they had.
Only a month later, the same happened to the Terra network and its stablecoin, as well as its native coin LUNA, causing all the projects running on this network to abandon ship and move to Polygon (MATIC).
Now, something similar threatens to happen to Celsius, and MakerDAO is not willing to risk being among those that will be taken down with Celsius if it does end up crashing.
MakerDAO governance proposal
Three days ago, on June 14th, a MakerDAO governance member known as prose11 published a proposal to temporarily disable the DAI Direct Deposit Module (D3M) for Aave. The reason that the user proposed is the fact that Celsius borrowed 100 million in DAI using stETH as collateral.
However, if Celsius and stETH fail due to the liquidation risks, then MakerDAO itself would find itself in a very difficult position. Celsius’ collapse would likely result in the project having to sell off its stETH due to its retail responsibilities, which would result in it getting liquidated on Aave. As a result, stETH would depeg even more, which would likely mean that Maker would not be able to retrieve the DAI borrowed by Celsius, thus resulting in MakerDAO seeing losses.
83 governance members voted on the proposal, and the majority of 58% thought that the risk of Celsius causing damage to MakerDAO is greater than the loss of revenue from Aave if the proposal is passed. Since the proposal was passed, the pause will come into effect today, June 17th, at 5.03 pm ET.
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