As an experienced analyst, I believe that this proposed removal of less-used stablecoins like USDP and GUSD from Aave V2 is a necessary step for the platform’s stability and security. Based on my understanding of the situation, it is clear that these stablecoins have limited liquidity, making them susceptible to price manipulation and other harmful events.
As a researcher studying the Aave decentralized finance (DeFi) platform, I’ve come across an upcoming community vote that aims to delist stablecoins, such as USDP and GUSD, from Aave V2.
The Aave community is preparing to make a decision on a proposition put forth by ChaosLabs. This proposition recommends retiring several less capitalized stablecoins, such as Paxos USD (USDP) and Gemini Dollar (GUSD), from the Aave V2 platform.
Based on recent occurrences, it is recommended that Aave takes action to decrease its vulnerability towards less frequently utilized stablecoins in version 2 of its platform. The rationale behind this suggestion is that these coins often experience limited liquidity, making them susceptible to price manipulation and other detrimental incidents.
The proposal details a multi-step strategy to tackle issues surrounding less frequently used stablecoins, which are more prone to price volatility owing to their meager trading volumes. According to ChaosLabs, the suggested scheme entails disabling borrowing for USDP, GUSD, LUSD, FRAX, and sUSD. Additionally, certain parameters, like reserve ratios and base rates, will be fine-tuned “to motivate borrowers to pay back their loans.”
Although there seems to be agreement among community members, the proposal must go through a snapshot vote by May 6 for formal acceptance. After the vote’s completion, an Aave Improvement Proposal (AIP) will then be submitted to carry out the suggested changes.
The price of USDP has experienced a significant rise on multiple cryptocurrency exchanges, such as Coinbase and Binance. Notably, data from the Chainlink Oracle shows that USDP reached a high of over $1.20. Although USDP doesn’t function as collateral, it remained an available asset for borrowing on Aave V2 in Ethereum. Consequently, several liquidations took place, leading to instances of bad debt.
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2024-05-03 12:26