AAVE to ‘freeze’ and replace BUSD? New proposal suggests…

• The Aave community proposed to freeze BUSD reserves in the Ethereum market.
• AAVE price skyrocketed with a tendency to remain green for a while.

Following the unfortunate events where the SEC proscribed BUSD as a security by the SEC, the Aave protocol [AAVE] looked to abandon its connection with the stablecoin. Members of the community, led by Marc Zeller, swiftly responded to the ongoing FUD with a proposal to freeze the BUSD reserves on Aave’s Ethereum [ETH] market.

Is your portfolio green? Check out the Aave Profit Calculator

Before now, BUSD had served as the only supported stablecoin in Aave’s decentralized exchanges. However, recent developments have forced the protocol to consider taking swift action.

“No prospect for growth”

Pointing out Paxos’ inability to mint BUSD anymore, Zeller mentioned that sticking to BUSD could hurt the project’s arbitrage opportunity. Apart from that, the proposal mentioned the stablecoin’s potential to edge towards zero with no growth prospect. Zeller wrote,

“As there’s no real prospect of growth and the inability to mint new BUSD might hurt peg arbitrage opportunity and asset peg. It seems that the most reasonable path for Aave is to freeze this reserve and invite users to switch to another stablecoin among the diversity present in Aave.”

Comments from the Aave DAO mostly appreciated the proposer. Also, many were in tune with the option. However, it was not yet clear which stablecoin the Aave community intends to switch to, despite having its own decentralized stablecoin GHO.

Further, Zeller suggested that the community could agree on the execution date for 26 February after the governance votes on it. He also added that the community could take the option of 19 February, which was two days before BUSD’s final minting.

Thus far, there has been a minimal number of votes on the options put forward. However, the token switched to greens after Paxos’ confirmation. In the last 24 hours, the token price was up 7.93%, with an incredible increase in trading volume.

How long will the AAVE greens stay?

Meanwhile, indications from the Bollinger Bands (BB) showed that AAVE’s volatility approached extreme stages. The token has had a bit of contraction lately. With respect to the underlying price, AAVE was most likely oversold, since the value continually hit the lower band.

Read Aave’s [AAVE] Price Prediction 2023-2024

Source: TradingView

A situation like this could lead to sustaining its day-long rally. The chart above also looks at the Exponential Moving Average (EMA). 

At the time of writing, the 20 EMA (green) positioned over the 50 EMA (yellow). This instance displayed how buyers were in control of the market at press time, and AAVE could hold on to the uptick in the short term.