Aave Proposal to Peg Ethnea’s USDe Token to USDT Sparks Community Pushback

Aave Proposal Seeks to Hardcode USDE Price to USDt: A Solution or a Risk?

A new proposal has been submitted to the Aave governance forum, suggesting that the price of Ethena’s synthetic dollar stablecoin, USDE, be hardcoded to match Tether’s USDt in Aave’s pricing feeds. The proposal, co-authored by Chaos Labs and LlamaRisk, aims to protect Aave users from exposure to secondary market fluctuations. In this article, we will delve into the reasoning behind the proposal, explore the potential risks and benefits, and examine the community’s feedback on this suggestion.

What is USDE?

USDE is a synthetic dollar stablecoin created by Ethena, backed by on-chain assets and derivatives. Unlike traditional stablecoins like USDT, which relies on fiat reserves, USDE is not directly pegged to any particular currency or asset. Instead, its value is determined by the supply and demand of USDE in the market.

Why Peg USDE to USDt?

The proposal suggests that a 5% drop in USDE’s price could put over $300 million worth of USDE-backed loans on Aave at risk of liquidation. This could trigger collateral sell-offs to repay outstanding debt. To mitigate this risk, the authors propose hardcoding USDE’s price to USDt.

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.

The Proposal

The proposal reads:

"To mitigate the risk associated with a USDe depeg event, we propose hardcoding USDe’s price to USDT."

However, some community members have expressed concerns about this approach. They argue that hardcoding USDE’s price to USDt may not address the fundamental risks associated with USDE.

Community Backlash

The proposal has drawn skepticism from Aave users, who question whether the approach addresses fundamental risks. Some of the community feedback on Aave’s proposal to hardcode USDE’s price to USDt is as follows:

• Hazbobo: "Hardcoding the USDe price to USDT price sounds a bit risky given USDe isn’t really intended to be a stablecoin. What’re the edge case risks involved? What’s the worst-case scenario?"
• ElliotNess: "This is a disappointingly low-quality ARFC from two service providers without digging into any potential conflicts… Frankly, this can be said of every non-hardcoded asset listed on the Aave protocol."

Potential Risks and Benefits

While hardcoding USDE’s price to USDt may mitigate some risks associated with secondary market fluctuations, it also raises several concerns:

• Over-reliance on USDt: By pegging USDE’s value directly to USDt, Aave users may be exposed to potential risks associated with USDt itself.
• Lack of diversification: Hardcoding USDE’s price to USDt reduces the flexibility and resilience of Aave’s pricing feeds.

On the other hand, some benefits of this proposal include:

• Reduced risk exposure: By linking USDE’s value directly to USDt, Aave users may be better protected from potential de-peg events.
• Increased stability: Hardcoding USDE’s price to USDt can help ensure seamless integration and avoid disruptions caused by transient price fluctuations in USDE.

The proposal to hardcode USDE’s price to USDt has sparked a lively debate within the Aave community. While some see this approach as a solution to mitigate risks associated with secondary market fluctuations, others question whether it addresses fundamental issues.

As the discussion continues, it is essential for Aave users to carefully evaluate the potential risks and benefits of this proposal. The outcome of this vote will have significant implications for the stability and resilience of Aave’s pricing feeds.

The proposal is currently in its early discussion stage, with no formal vote scheduled yet. As the community continues to debate and discuss the merits of this suggestion, it is crucial for users to consider the potential risks and benefits associated with hardcoding USDE’s price to USDt.

In conclusion, while the proposal has sparked a lively debate within the Aave community, it remains to be seen whether hardcoding USDE’s price to USDt will ultimately become a reality. As the discussion continues, one thing is clear: the stability and resilience of Aave’s pricing feeds depend on the outcome of this vote.

Additional Resources

• Aave Governance Forum: https://gov.aave.com/
• Chaos Labs: https://chaoslabs.fi/
• LlamaRisk: https://llamarisk.io/
• Ethena: https://ethena.io/