Conflict between MakerDAO and Aave in the DeFi space reignites due to concerns about the perceived increase in risk associated with DAI.

The relationship between MakerDAO and Aave, two major decentralized finance (DeFi) protocols, is deteriorating as tensions rise over new innovations and perceived risks. The controversy revolves around a controversial stablecoin called USDe and MakerDAO’s Direct Deposit Dai Module (D3M). MakerDAO initially launched its Dai token in 2017 as a decentralized stablecoin backed by Ether. In 2019, MakerDAO introduced multicollateral Dai, allowing it to be backed by multiple cryptocurrencies, including centralized stablecoins like USD Coin. Aave, on the other hand, is a peer-to-peer cryptocurrency lending platform that integrated Dai as collateral on its platform. The two platforms collaborated during the 2021 DeFi boom, but the 2022 bear market and the collapse of other DeFi protocols and lending firms put pressure on both protocols. MakerDAO temporarily cut off Aave’s D3M to protect itself, and MakerDAO also sought to reduce its exposure to Aave. The tension between the two protocols intensified in 2024 when Aave debated limiting the amount of Dai allowed as collateral. While the issue was settled with a loan-to-value reduction, the controversy surrounding USDe, a stablecoin linked to a hedge fund trade, remains. Critics argue that USDe could become under-collateralized during a bear market, while supporters believe it is a normal tokenized strategy. The recent spat between MakerDAO and Aave was resolved with a loan-to-value reduction, but it is likely that these two protocols will clash again in the future due to the presence of other competing protocols.