A New Proposal on Aave Seeks to Protect Users from Secondary Market Fluctuations
On January 3, a proposal co-authored by Chaos Labs and LlamaRisk was submitted to the Aave community. This proposal suggests hardcoding the price of Ethena’s USDE to match Tether’s USDt in Aave’s pricing feeds. The main goal behind this proposal is to protect Aave users from exposure to secondary market fluctuations.
Why Peg USDE to USDT?
According to the proposal, 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.
Aave: A Decentralized Finance (DeFi) Lending Protocol
Aave is the largest decentralized finance (DeFi) lending protocol, with $37 billion in total value locked. It allows users to borrow and lend cryptocurrencies without intermediaries. Users can deposit assets into Aave’s liquidity pools and earn interest or borrow using crypto as collateral.
USDE: A Synthetic Dollar Stablecoin Backed by Onchain Assets and Derivatives
Ethena created USDE, a synthetic dollar stablecoin backed by on-chain assets and derivatives. Unlike USDT, which relies on fiat reserves, USDE now ranks as the third-largest stablecoin, with a $5.85 billion market cap.
Related: Ethena’s USDe Beats DAI to Become 3rd-Largest Stablecoin
Why Hardcode USDE’s Price to USDt?
The proposal suggests hardcoding USDE’s price to USDt to mitigate the risk associated with a USDE depeg event. However, some community members have raised concerns about this approach.
Community Backlash: Skepticism and Criticism
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:
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?
User Hazbobo pointed out that hardcoding USDE’s price to USDt might not address the underlying issues.
Community Member ElliotNess Criticizes the Proposal
Another community member, ElliotNess, criticized the proposal for failing to address underlying risk factors:
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.
ElliotNess questioned the rationale behind pegging USDE to USDt and suggested that if Aave plans to hardcode USDE’s price, it might as well peg it directly to $1.00 to avoid secondary market price deviations entirely.
The Proposal is in its Early Discussion Stage
The proposal is currently in its early discussion stage, with no formal vote scheduled yet. At the time of publication, AAVE was trading at $340, up 7% in the past 24 hours and 230% over the past year.
Aave’s Growth in 2024
Aave’s growth in 2024 has been driven by expansion into new markets, including BNB Chain, Scroll, ZKsync Era, and Ether.fi. The protocol is also eyeing further integrations in 2025, with potential additions like Sonic, Mantle, Ethereum layer 2 Linea, Bitcoin layer 2 BOB, Spider Chain, and Aptos, pending community approval.
Ethena’s 2025 Roadmap
Ethena ENA surged 17% following the release of its 2025 roadmap. The roadmap details plans to integrate with Telegram and launch a new dollar savings product. The integration will introduce a payment and savings app based on sUSDE, aiming to deliver a ‘neobank experience’ within the messaging platform.
Ethena’s Roadmap: Integrating USDE into Telegram
The Jan 3 roadmap introduced iUSDe, a wrapped version of sUSDe, which currently offers a 10% yield. Ethena announced plans to integrate sUSDE into Telegram, leveraging its 900 million users.
