MakerDAO halts Aave-related lending operations

The MakerDAO DeFi platform community voted to disable Aave from the direct-deposit module. The decision was prompted by Celsius Network taking out a 100 million DAI loan backed by stETH via a crypto-lending project.

Due to market conditions, the Maker Governance voted to disable the @AaveAave D3M.

According to the Urgent Signal Request posted on the recommendation of the Risk Core Unit, this is a preventive measure against potentially unacceptable risks to the Maker Protocol.

— Maker (@MakerDAO) June 17, 2022

The initiative will effectively exclude Aave users from borrowing DAI, using staked Ether on Lido Finance as collateral.

“The reason we see this risk is that half of the 200 million DAI borrowed on Aave is backed by Celsius and mainly secured by stETH. […] Contagion risks in DeFi are increasing”, — wrote one of the risk-management team members at MakerDAO.

A forced liquidation of Celsius’s position on Aave could lead to additional selling of stETH and threaten the repayment of borrowed DAI.

The decision will be reviewed on July 1.

According to Bloomberg, to reduce stETH-related risks in Aave, MakerDAO proposed freezing operations with the token and raising the position-liquidation threshold from 81% to 90%. In the DeFi community, the proposed measures were called “an unacceptable risk” and a bespoke solution.

On June 13, the Celsius crypto-lending platform suspended withdrawals, exchanges, and transfers between accounts “due to extreme market conditions”. The project token fell by 50%.

There were reports that Celsius hired Citigroup to explore possible financing options, while leading investors did not express a desire to rescue the company.

As reported, Georgetown University Law Professor Adam Levitin called Celsius’s bankruptcy practically inevitable.

Earlier, an expert described for ForkLog a potential scenario for DAI price destabilisation.

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