MakerDAO Stops Lending DAI To Aave For Fear Of Celsius Risks

MakerDAO has just decided to stop pumping money into Aave through its D3M partnership product, in order to minimize the risk if Celsius defaults and the price of stETH could plummet.

MakerDAO cuts DAI supply to Aave

MakerDAO has just voted to approve a proposal to stop lending to Aave stablecoin DAI in the form of unsecured assets. The move means that MakerDAO is looking to gradually reduce its exposure to the recent stETH crash and control the risk for stablecoin DAI.

Accordingly, the proposal has been approved by the majority of votes and will officially go into operation at 4 am on June 18. However, the D3M delay is said by Maker to be “temporary” amid the current volatility.

Earlier on June 14, a DAO proposal suggested that Maker should delay lending Aave DAI through the Direct Deposit Module (D3M) mechanism because Celsius had previously borrowed 100 million DAI collateralized by stETH.

Suggested writing:

“The reason we believe the risk is so great is because of the 200 million DAI being borrowed on Aave v2, 100 million of that is in Celsius and is largely collateralized in stETH.”

D3M is a collaborative product between MakerDAO and Aave. This is a solution to help MakerDAO control interest rates for DAI in lending pools on Aave (which often fluctuates according to users’ borrowing needs).

Also on June 14, Aave side proposed to stop lending ETH with stETH as collateral, in order to protect the platform against the risk of exchange rate bias. However, at the time of writing, this proposal was strongly opposed, with 90% of people voting in favor of approval.

In March 2020, a transaction delay on Ethereum also caused Maker to incur a large bad debt from DAI. After that, this organization had to launch an MKR auction to make up for the aforementioned difference.

Celsius’ current situation

As of the morning of June 17, Celsius is still maintaining a loan order of 224.7 million DAI on MakerDAO, collateralized with 23,962 WBTC (worth nearly $490 million). This order will be liquidated if BTC price drops to $13,601.

In addition, this unit is borrowing USD 303 million USDC and DAI stablecoins on Aave, collateralized with USD 292 million stETH, WBTC, WETH and LINK; with $200 million and DAI on Compound, collateralized with $108 million in WBTC and ETH.

Celsius has posted a notice that continues to reassure users that the company is doing everything to save the situation, pledging to still reward users for depositing even when it is blocking deposits, withdrawals and transactions, but still does not confirm normal operation resumption time.

In addition, the Financial Conduct Authority in 5 US states is said to be about to open an investigation into Celsius because of the recent incident.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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