A new proposal on Aave suggests hardcoding the price of Ethena’s USDe to match Tether’s USDt in Aave’s pricing feeds. The proposal, co-authored by Chaos Labs and LlamaRisk, was submitted on January 3 and seeks to protect Aave users from exposure to secondary market fluctuations.
Why Peg USDE to USDT?
Aave currently uses Chainlink’s USDe/US dollar price feed to value staked USDe (sUSDe), a staked version of USDE. According to the proposal, a 5% drop in USDE’s price could put over $300 million worth of USDE-backed loans on Aave at risk of liquidation. This could trigger collateral sell-offs to repay outstanding debt.
"To mitigate the risk associated with a USDe depeg event, we propose hardcoding USDe’s price to USDT," the authors stated.
Community Backlash
The proposal has drawn skepticism from Aave users, who question whether the approach addresses fundamental risks.
A Snippet of Community Feedback on Aave’s Proposal to Hardcode USDE’s Price to USDT
"A snippet of community feedback on Aave’s proposal to hardcode USDE’s price to USDT. Source: Aave Governance Forum."
- "Hardcoding the USDe price to USDT price sounds a bit risky given USDe isn’t really intended to be a stablecoin," user Hazbobo pointed out. "What’re the edge case risks involved? What’s the worst-case scenario?"
- Another community member, ElliotNess, criticized the proposal for failing to address underlying risk factors: "This is a disappointingly low-quality ARFC from two service providers without digging into any potential conflicts… Frankly, this can be said of every non-hardcoded asset listed on the Aave protocol."
- ElliotNess questioned the rationale behind pegging USDE to USDT, suggesting that if Aave plans to hardcode USDe’s price, it might as well peg it directly to $1.00 to avoid secondary market price deviations entirely.
Aave’s Growth and Expansion
The proposal is in its early discussion stage, with no formal vote scheduled yet. At the time of publication, AAVE was trading at $340, up 7% in the past 24 hours and 230% over the past year. Aave’s growth in 2024 has been driven by expansion into new markets, including BNB Chain, Scroll, ZKsync Era, and Ether.fi.
Ethena’s 2025 Roadmap
Ethena surged 17% following the release of its 2025 roadmap, detailing plans to integrate with Telegram and launch a new dollar savings product. The Jan. 3 roadmap introduced iUSDe, a wrapped version of sUSDe, which currently offers a 10% yield. Ethena announced plans to integrate sUSDe into Telegram, leveraging its 900 million users.
The Benefits of Pegging USDE to USDT
Pegging USDE to USDT would ensure seamless integration and avoid disruptions caused by transient price fluctuations in USDE. This approach would also protect Aave users from exposure to secondary market fluctuations.
A Comparison of Stablecoins
USDE, created by Ethena, is a synthetic dollar stablecoin backed by onchain assets and derivatives, unlike USDT, which relies on fiat reserves. USDE now ranks as the third-largest stablecoin, with a $5.85 billion market cap, trailing USDt and USD Coin.
The Risks of Pegging USDE to USDT
While pegging USDE to USDT may seem like a straightforward solution, it raises questions about the underlying risks. If Aave plans to hardcode USDe’s price, it might as well peg it directly to $1.00 to avoid secondary market price deviations entirely.
Conclusion
The proposal to hardcode USDE’s price to match Tether’s USDt in Aave’s pricing feeds has sparked a heated debate within the community. While some argue that this approach would protect Aave users from exposure to secondary market fluctuations, others question whether it addresses fundamental risks. The proposal is still in its early discussion stage, and no formal vote has been scheduled yet.
Recommendations
- More Information on Potential Conflicts: LlamaRisk, which is part of Ethena’s risk committee, should provide more information on potential conflicts related to the proposal.
- Addressing Underlying Risk Factors: The proposal should address underlying risk factors associated with pegging USDE to USDT.
- Alternative Solutions: Aave should consider alternative solutions that do not involve hardcoding USDe’s price.
The proposal is a reminder of the complexities involved in decentralized finance (DeFi) and the need for careful consideration when making decisions about the value of assets.
References
- "Proposal Seeks to Hardcode USDE’s Price to Match Tether’s USDt in Aave’s Pricing Feeds." Aave Governance Forum.
- "Ethena Surges 17% Following Release of 2025 Roadmap." CoinTelegraph.
- "Aave Expands into New Markets, Including BNB Chain and Scroll." Coindesk.
