Aave Declares War on MakerDAO Over Ethena and USDe Stablecoin

On the evening of April 2, the DeFi community was abuzz with the brewing conflict between Aave and MakerDAO, two of the leading lending protocols in the market, each developing its own stablecoin.

Aave Declares War on MakerDAO Over Ethena and USDe Stablecoin

The first major move came from Marc Zeller, a core member of the Aave community, who proposed to reduce the borrowing limit for Maker's stablecoin DAI to 0%. Additionally, this proposal aims to exclude sDAI from Aave's Merit reward program.

"The proposal to remove the collateral status of $DAI in Aave is now live. This will mitigate potential contagion risks for the Aave users. DAI remains an onboarded asset that users are free to borrow. 'Endgame' it is."
— Marc “Chainsaw” Zeller

This proposal essentially severs all applications of the DAI stablecoin within Aave's ecosystem.

The reason given for this proposal is that DAI has been massively pumped through the D3M mechanism into an unverified protocol, Ethena. The pace could accelerate to 600 million to 1 billion DAI soon. This move is a precaution for Aave, as it has faced similar, albeit smaller, risks in the past.

Notably, D3M was once an initiative to facilitate liquidity flow between Aave and MakerDAO.

Aave's founder, Stani Kulechov, also expressed his agreement with halting support for DAI.

Earlier on April 2, MakerDAO announced plans to partner with Morpho and Ethena to inject 600 million DAI into a lending pool. This move followed the rapid depletion of a previously injected 100 million DAI due to high demand.

In response to Aave's criticisms, a "ally" of MakerDAO, Morpho, clarified the liquidity injection mechanism through D3M. Morpho's representative stated that the lending pool would use sUSDe as collateral and DAI for loans, with a liquidation threshold set at 86%.

"First, the mechanism. Maker is leveraging Morpho’s infrastructure that is composed of two immutable pieces: Morpho Blue & MetaMorpho. Morpho Blue is a permissionless core lending engine. Anyone can deploy markets with:1 collateral asset (e.g., sUSDe)1 loan asset (e.g., DAI)"

With the latest developments, it is likely that both sides' plans will soon be implemented. The DeFi community believes that if a full-blown conflict erupts between the two sides, it would be regrettable as it would sever the interconnectivity between products in the ecosystem.

"For those following, @MakerDAO did not blink. Guessing @aave will not as well. Very sad to see two great protocols that just need a little time to sit down and talk. A week’s delay would probably set everything straight."

Regardless of the reasons publicized, many believe the core issue lies in the two protocols' competition in the crucial areas of Lending and Stablecoins. With its bolder strategies, MakerDAO seems to be ahead, quickly pushing DAI into high-yield opportunities. However, Aave, despite not achieving significant success with its GHO stablecoin, remains a formidable force in the Lending sector, consistently ranking among the top in terms of total value locked (TVL).