MakerDAO has dicated to stop lending platform Aave’s capability to generate DAI because of its lending pool without collateral because the perils of Celsius’s liquidity crisis loom large within the entire crypto ecosystem.
The decentralized autonomous organization (DAO) made a decision as a way of mitigating the producer protocol’s contact with the unhappy staking and lending platform in situation Celsius goes belly up and implodes the stETH peg too.
stETH is really a token representing some ETH that’s staked around the Lido staking platform. Its peg to ETH continues to be wavering for many days and it is presently buying and selling about 6% underneath the cost of ETH. Celsius invested a lot of user funds into stETH, that is apparently a primary reason it stopped withdrawals.
The Producer Governance has dicated to temporarily disable the @AaveAave DAI Direct Deposit Module (D3M).
This transformation can be obtained for execution on Next Month 2022 21:03 UTC.
— Maker (@MakerDAO) June 15, 2022
A June 14 governance proposal from DAO member prose11 recommended the Maker protocol should temporarily disable the DAI Direct Deposit Module (D3M) for Aave because Celsius lent 100 million in DAI collateralized by stETH, which may be vulnerable to liquidation if Celsius fails.
“The reason we feel this really is dangerous happens because from 200M DAI lent on Aave Ethereum v2, 100M DAI has been lent by Celsius and collateralized mostly by stETH.”
The D3M enables Aave to stabilize the DAI loan rates of interest by supplying use of liquidity if needed. Aave’s D3M includes 200 million DAI, 100 million of that have been lent by Celsius.
If Celsius does collapse, it could sell its stETH to recognition retail responsibilities and obtain liquidated on Aave, which may likely pressure stETH to depeg even more. This could place the Maker protocol at the chance of the inability to retrieve all of the DAI Celsius lent.
Around 58% from the 83 voters around the proposal felt the tail risk presented by Celsius was more than losing revenue from Aave by passing the proposal. The pause can come into effect at 5:03 pm ET on Next Month.
Related: BitBoy founder threatens class action lawsuit suit against Celsius
Another June 14 governance proposal was help with on Aave itself to find out whether or not this should freeze stETH, pause ETH borrowing, while increasing the liquidation threshold for stETH borrowers. However, opponents possess a steep advantage on this proposal with nearly 90% from the election during the time of writing.
Maker’s move is a good example of decentralized finance (DeFi) protocols observing contagion within the ecosystem and trying to safeguard themselves from getting tagged. Additionally to Celsius, crypto investment firm Three Arrows Capital has become suffering the results of contagion, and threatening to spread it further, with reports of the $400 million liquidation and it is lack of ability to satisfy margin calls.
