Recent Aave DAO move on MakerDAO fuels DeFi ‘walled gardens’ concerns

In the recent wake of Web3 adoption, two competitors have found themselves in a squabble in the aftermath of Web3 adoption. Gauntlet, AAVE’s market risk manager, was also caught side-hustling with MakerDAO, AAVE’s direct competitor.

Gauntlet’s exit from Aave caused further conflict between the two decentralized lending platforms. The key distinction between the two is that Aave determines interest rates based on the utilization rate of crypto assets, whereas MKR investors set MakerDAO’s interest rates. MakerDAO employs DAI as collateral, but Aave accepts a wide range of crypto assets for borrowing. Aave also encourages liquidators to settle debt positions in cases of under-collateralization, which occurs when the borrowed amount exceeds the collateral value. MakerDAO does this through the use of a collateral ratio; if the ratio goes below a particular threshold, the protocol automatically liquidates the funds.

In March of this year, Aave’s community airdrop was closed to users of the Morpho Aave optimizer, a protocol built on top of Aave that DAO members feel takes money away from the flagship protocol. The creator of the Aave Chain Initiative, Marc Zeller, suggested a 0% loan-to-value ratio for MakerDAO’s DAI stablecoin after the event. This would severely split the market by preventing users from using DAI as collateral. The Aave Chan Initiative, the principal Aave DAO delegate, is leading this proposal as part of AAVE’s loyalty premium.

Zeller has also expressed concerns about a future split between MakerDAO and Gauntlet, a mechanism he believes is unneeded for Aave. He believes that the protocol embassy will help the DAO explore collaborative opportunities with other protocols. Maker initiated the MakerDAO proposal, which seeks to partition Maker’s balance sheet into USDe and sUSDe tokens provided by Ethena, a stablecoin issuer. The Spark subDAO, a lending protocol that began as a fork of Aave, proposed this suggestion.

Spark and Morpho, Aave’s non-alignment target, have recently forged a relationship, which might facilitate the allocation. Zeller also criticized Maker for poor management and a lack of monitoring on the social networking platform X. He submitted his suggestion to Aave’s governance forum, while Stani Kulechov, AAVE’s founder, supported the entire elimination of DAI from all Aave markets. 

The CEO of Phoenix Labs, a Spark contributor, Sam MacPherson, voiced concerns regarding the Aave DAO’s plan to set the loan-to-value (LTV) ratio of DAI to 0%. Observers of Aave’s conflict with Maker voiced serious concern about a potential split between two major companies in the DeFi area. Matt Fiebach, a research analyst at Blockworks, was likewise disappointed with the fragmentation of the decentralized finance (DeFi) field into silo ecosystems.