The contentious notion of imposing a ceiling on the use of CRV as collateral, aimed at restricting a specific wallet address from further loan accumulation, has sparked a storm within the Aave community. This proposal, dated June 12, has led to intense debates concerning the violation of the core ethos of DeFi, or decentralized finance: censorship-resistance and neutrality.
Certain community members conjecture that the account belongs to Curve’s founder, Michael Egorov, although this remains unverified by Cointelegraph. The proposal initiator, Gauntlet, a financial modeling platform, asserts that Ethereum address 0x7a16ff8270133f063aab6c9977183d9e72835428 has amassed a significant debt of $67.7 million in USD Coin (USDC) and Tether (USDT) via the Aave v2 protocol, secured by $185 million worth of Curve tokens.
Gauntlet’s concern lies in the potential of the account continuously increasing its debt, triggering the risk of liquidation, particularly in the face of a drastic Curve price drop. Complicating the issue is CRV’s diminishing liquidity in recent months, which could result in slippage in the event of liquidation due to a lack of willing CRV buyers. This could consequently lead to substantial bad debt for Aave, Gauntlet warns.
Aave user, DecentMuse, identifies the wallet as potentially belonging to Egorov, hinting that the loan may be a strategy for the founder to profit from his efforts with Curve. However, these speculations remain unconfirmed.
Gauntlet’s proposal advises the Aave DAO (Decentralized Autonomous Organization) to incorporate a measure freezing further utilization of CRV as collateral. While this could stabilize the current loan situation, it would prevent the accumulation of additional debt.
The community appears divided on this issue, with some condemning the account’s aggressive debt strategy, while others defend the owner’s actions, suggesting the belief in CRV’s undervaluation as a plausible reason for leveraging it as collateral.
Marc Zeller, the founder of the Aave-Chan Initiative, adds his voice to the debate, cautioning the Aave DAO against violating DeFi’s foundational principle of neutrality. He reminds that the users’ intentions or fund usage are not the primary concerns of the DAO; instead, users should be allowed the freedom to employ the protocol as they deem fit.
Currently, the proposal remains a “recommendation”, awaiting its transition into a formal Aave Improvement Proposal (AIP) eligible for DAO voting. This progression to an AIP is purportedly the next step according to the proposal’s author.
Censorship resistance and the extent of its boundaries continue to be hotly debated topics within the blockchain space. Earlier in the year, Bitcoin users were divided over high transaction fees resulting from Ordinals’ trading and minting, with some advocating for a ban viewed by others as censorship.
In a similar vein, Tether’s move to blacklist an address implicated in siphoning $25 million from EVM front-running bots sparked controversy in April. While some, like Polygon’s co-founder Jaynti Kanani, see such actions as setting harmful precedents leading to more transaction censorship, others, like on-chain investigator ZachXBT, propose that Tether may have been legally compelled to take this action.
This ongoing conversation highlights the balancing act between maintaining the openness of the DeFi ecosystem and managing risks and potential abuses. It also underscores the complexity and importance of governance in decentralized systems, an area that is still maturing and evolving. The outcome of Aave’s proposal may influence similar future decisions in other DeFi platforms, emphasizing the need for thoughtful and inclusive decision-making processes.