In the fast-paced realm of decentralized finance (DeFi), clashes between major players like AAVE and Maker can send shockwaves throughout the ecosystem. The recent feud between Aave and MakerDAO over ethena has not only captured attention but also raised pertinent questions about risk management and sustainability. In this follow-up analysis, we delve into the data behind the conflict to uncover its true impact and implications for the broader DeFi landscape.

Unveiling the Numbers:

To comprehend the magnitude of the Aave X Maker feud, it's imperative to scrutinize the data surrounding the proposal. On March 22nd, 2024, a pivotal moment emerged with a proposal to deploy a substantial sum into Spark's USDe sUSDe/DAI vaults on Morpho Blue. The proposal aimed to skyrocket lending facilities from 100 million DAI to an eye-watering 600 million DAI, with potential extensions to 1 billion DAI. However, the catch lay in the high loan-to-value (LTV) ratios, surpassing 90%, raising concerns about the sustainability and risk exposure of the venture.

Impact Assessment:

The fallout from the proposal reverberated across the DeFi landscape, prompting intense debate and scrutiny. One significant repercussion was the polarization of stakeholders, with the Aave Chan initiative advocating for a conservative approach to mitigate risks amidst rapid growth and evolving challenges. As tensions escalated between Aave and MakerDAO, the broader DeFi community found itself at a crossroads, grappling with the delicate balance between innovation and risk management.

Deep Dive into the Numbers:

To dissect the ramifications of the feud, let's embark on a deep dive into the numbers. The surge in lending facilities undoubtedly fueled speculation and enthusiasm but also exposed participants to heightened risk levels, as evidenced by the soaring LTV ratios. Moreover, the clash between Aave and MakerDAO underscored the intricate interplay between protocol governance, risk tolerance, and market dynamics.

Taking excerpts from Chaos Lab’s report:

As a result of Ethena prioritizing rewards for USDe utilization over sUSDe, there is a notable difference in the absolute increases in USDe total supply compared to the USDe staked in sUSDe. Currently, only 24% of all USDe is staked, leading to an asymmetric insurance fund accrual mechanism as the protocol scales up. As per the Ethena docs, for “the duration of the shard campaign, the reserve fund will be funded by a portion of the yield generated by the Protocol asset backing, which relates to the proportion of USDe that is not staked.” The remaining surplus, currently 76%, is being directed to the underfunded insurance fund to maintain its growth alongside the rapid growth in USDe supply.

Looking at what Ethena has been through:

A significant portion of Ethena’s collateral is concentrated on centralized exchanges, particularly Binance, exposing the protocol to increased counterparty risks. Moreover, Ethena’s collateral is held by a few custodians, including Copper, Cobo, and Ceffu. Greater transparency regarding verifiable collateral balances vs. circulating USDe would help assess overall risk.

Data-Backed Insights:

Examining the data through a critical lens unveils invaluable insights into the underlying dynamics of the feud. Firstly, it elucidates the importance of prudence and foresight in navigating the turbulent waters of DeFi. While rapid growth may yield short-term gains, it also amplifies vulnerabilities and exposes participants to systemic risks. Furthermore, the feud underscores the imperative for collaboration and cohesion among ecosystem players to foster a resilient and sustainable DeFi landscape.

Conclusion:

In continuation, Lucidity's commitment to empowering users with enhanced insights and control over their leverage positions stands as a beacon of progress within the evolving DeFi landscape. Through our leverage aggregator, users will navigate economic risks, fluctuations in liquidity, and protocol-specific vulnerabilities with confidence and clarity. As we navigate the complexities illuminated by the Aave X Maker feud, let us embrace the tools and principles that pave the way for a more robust and collaborative DeFi ecosystem.