As a seasoned crypto investor with over a decade of experience navigating the volatile and rapidly evolving digital asset landscape, I find myself intrigued by the recent proposal to hardcode Ethena’s USDe stablecoin’s value to match Tether’s USDt in Aave’s pricing feeds. My initial thoughts are mixed, as this move could potentially mitigate risks for users on Aave while also introducing new ones.
Having witnessed numerous stablecoin depegs and their subsequent impact on the market, I can understand the rationale behind this proposal. The proposed link between USDe’s value and USDt would ensure a more stable environment for Aave users, preventing disruptions caused by transient price fluctuations in USDe. However, as someone who values transparency and thorough analysis in the projects I invest in, I share concerns about potential conflicts of interest given that LlamaRisk is part of Ethena’s risk committee.
From a risk management perspective, it’s essential to consider edge case risks and worst-case scenarios before implementing such a change. Hardcoding USDe’s price to USDt may address immediate concerns about depegging events, but it could inadvertently expose Aave users to other unforeseen risks associated with Tether or USDT.
In light of the ongoing discussion and skepticism from the community, I believe it’s crucial for the proposal’s authors to provide a more detailed analysis addressing underlying risk factors and potential conflicts. If Aave decides to hardcode USDe’s price, perhaps they should consider pegging it directly to $1.00 instead of USDT to avoid any secondary market price deviations entirely.
In the end, I find humor in the situation, as the crypto world never ceases to surprise us with its twists and turns. It’s like a rollercoaster ride that keeps going up and down, left and right – but hey, that’s what makes it exciting! 🚀🎢
Disclaimer: This is not financial advice; always do your research before making investment decisions.
As an analyst, I am advocating for a novel proposition regarding Aave. This suggestion involves integrating Ethna’s USDE stablecoin into Aave’s pricing system by programming it to maintain parity with Tether’s USDt. This adjustment aims to ensure consistency in the valuation of both stablecoins within Aave’s ecosystem.
On January 3rd, I submitted a collaborative proposal along with my colleagues at Chaos Labs and LlamaRisk. This proposal aims to provide Aave users with protection from the unpredictable fluctuations in secondary markets. As a member of Ethena’s risk committee and someone who has seen firsthand the impact of market volatility, I am particularly passionate about this initiative. The document we submitted explains our proposed solution in detail, but at its core, it seeks to ensure that Aave users can navigate the cryptocurrency landscape with greater confidence and security.
“By linking USDe’s value directly to USDt, we align the sUSDe oracle with USDt pricing, ensuring seamless integration and avoiding disruptions caused by transient price fluctuations in USDe.”
Aave, abbreviated as AAVE, represents the most extensive peer-to-peer lending platform in the realm of decentralized finance (DeFi). It has amassed a total worth of approximately $37 billion, secured within its system. This platform empowers users to both loan and borrow digital currencies without any intermediaries. By contributing assets to Aave’s liquidity pools, users can accrue interest or utilize crypto as security for borrowing funds.
Ethena’s creation, USDE, stands as a digital dollar stablecoin that is supported by on-chain assets and derivatives, unlike USDT which depends on fiat reserves. As per CoinGecko, the market capitalization of USDE currently amounts to $5.85 billion, making it the third most prominent stablecoin, following USDT (Tether) and USD Coin (USDC).
Why peg USDE to USDT?
At the moment, Aave relies on Chainlink’s USDe-USD price data feed to determine the worth of staked USDe (stkUSDe), which is simply a deposited form of USDE.
Based on the suggested plan, if the value of USDE decreases by 5%, it might endanger more than $300 million in USDE-secured loans on Aave, potentially leading to forced liquidations. Consequently, this could lead to the sale of collateral to settle outstanding debts.
The authors suggested a method to reduce the potential impact of a USDe’s disconnection from the dollar (depeg event). They proposed setting the value of USDe to always equal USDT instead of allowing it to float freely.
Community backlash
The idea has sparked doubts among Aave users, as they wonder if it truly tackles the underlying risks at the heart of the matter.
User Hazbobo cautioned that directly linking USDe’s value to USDT could potentially be risky, considering USDe isn’t designed as a stablecoin. He asked about the potential issues in edge cases and wanted to know what might happen in the worst-case scenario.
As a researcher, I noted a critique from fellow community member, ElliotNess, who pointed out that our proposed approach may not adequately tackle the root causes of the issue at hand.
They commented that the ARFC from these two providers was surprisingly poor in quality, and they didn’t investigate any possible conflicts. In essence, it could be said that similar criticisms apply to all assets on the Aave protocol that aren’t specifically coded.”
Or more casually:
“They pointed out that the ARFC from these two providers was disappointingly low-quality and didn’t examine potential conflicts. To put it simply, this critique could be extended to every asset on the Aave protocol that isn’t hardcoded.
As a researcher delving into the intricacies of Aave’s design, I find myself questioning the reasoning behind linking USDE to USDT. If Aave intends to fix the value of USDE, it seems more straightforward and efficient to peg it directly at $1.00, thereby eliminating fluctuations in the secondary market that may arise from this indirect connection.
The proposal is in its early discussion stage, with no formal vote scheduled yet.
Currently, AAVE is being exchanged at a price of $340, marking an increase of 7% within the last day, and an impressive surge of approximately 230% over the course of the previous year.
2024 saw Aave’s growth propelled by its entry into fresh territories such as BNB Chain, Scroll, ZKsync Era, and Ether.fi. Furthermore, the platform is looking to deepen its connections in 2025, potentially incorporating new partners like Sonic, Mantle, Ethereum layer 2 Linea, Bitcoin layer 2 BOB, Spider Chain, and Aptos – subject to community endorsement.
Ethena’s 2025 roadmap
After unveiling its 2025 strategy, which includes integrating with Telegram and introducing a new dollar-based savings product, Ethena (ENA) experienced a 17% increase in value.
Starting January 3rd, a new roadmap was unveiled, introducing iUSDe – an upgraded version of sUSDe that currently provides a 10% return. Ethena has revealed intentions to incorporate sUSDe into Telegram, utilizing its massive user base of approximately 900 million people. This integration will lead to the development of a payment and savings application centered around sUSDe, aiming to offer a “neobank experience” within the messaging environment.
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2025-01-04 14:12