Aave DAO Sets USDS and DAI Loan-to-Value to 0% Amid Risk Concerns
Aave DAO voted to halt collateral borrowing for USDS and DAI in Aave V3 and increased the risk reserve to 25%, citing reduced yields and issuance risks.
DAI
AAVE
USDS
Summary
Aave DAO approved reducing the loan-to-value (LTV) ratio for USDS and DAI to 0% across all Aave V3 deployments, effectively stopping their use as collateral for new loans. The decision also includes raising the protocol’s risk reserve to 25% to mitigate potential losses. The proposal cited diminished yield structures and asymmetric issuance risks for USDS. MakerDAO founder Rune indicated a possible future reinstatement of USDS as collateral if transparency improves.
Terms & Concepts
- Aave DAO: A decentralized autonomous organization (community-governed body) managing the Aave lending protocol.
- Loan-to-Value (LTV): A measure of the ratio between the borrowed amount and the value of its collateral in lending platforms.
- Risk Reserve: Funds set aside by a lending protocol to cover potential losses from defaults or other risks.