Celsius and the Aave DAI supply are both disabled with MakerDAO

MakerDAO has opted to temporarily shut down the Direct Deposit Module (D3M) of DAI for DeFi lending platform Aave. To limit exposure to the failing Celsius Network.

DAI loans will not be available through the Direct Deposit Module for Aave users who use stETH as collateral.

The Aave team is evaluating other ways to provide DAI liquidity to its users and is expected to make an announcement soon. In the meantime, Aave users can still access other protocols and assets on the platform.

MakerDAO has also disabled the Aave supply of Celsius (CEL) token, which was used as collateral on the Aave platform. This is in addition to the previous MakerDAO vote to delist CEL from the Dai Savings Rate (DSR).

The organization that created the DAI stablecoin is called MakerDAO.

On Thursday, MakerDAO tweet that its community members voted to suspend the Aave DAI Direct Deposit Module “temporarily.” This is due to the recent Aave Upgrade.

The Aave team is currently working on providing DAI liquidity to its users and is expected to make an announcement soon. In the meantime, Aave users can still access other protocols and assets on the platform.

The outcome of the vote was to be carried out from June 17, 2022 at 21:03 UTC, according to the tweet.

Reducing Maker’s vulnerability to Celsius

Earlier this week, a governance proposal to halt DAI supply on Aave was submitted. To minimize Maker’s risk from the embattled crypto lending platform Celsius.

The Target Borrow Rate will be set to zero in the smart contract that controls D3M. Preventing Celsius from borrowing further using Aave’s D3M, according to the governance plan.

Part of the proposal reads:

“This change is being proposed to temporarily disable the Aave D3M. The Aave DAI Direct Deposit Module (D3M) Target Borrow Rate (bar) will be set to 0”

How does the Direct Deposit Module (D3M) function?

The Direct Deposit Module (D3M) allows people to borrow and lend money to each other. The D3M makes sure that the interest rate for DAI is stable across different lending pools, like on Aave.

Aave has a total of 200 million DAI tokens. 100 million of those tokens were borrowed by Celsius using stETH (a representation of ETH staked with Lido) collateral. The Aave team is currently working on integrating more assets into the Aave ecosystem.

The Aave DAI Direct Deposit Module (D3M) Target Borrow Rate (bar). This is the minimum interest rate that Aave should offer to its users when they deposit their DAI tokens in the Aave ecosystem.

The Aave team sets the bar according to the MakerDAO community’s decision. Right now, the Aave team has decided to set the bar at 0%.

Celsius association with stETH

Earlier this week, Celsius paused withdrawals, transfers, and swaps, because there were concerns about the crypto lender’s exposure to stETH.

There was growing unreliability on stETH because of the upcoming Ethereum merge that made it lose its peg against ETH.

As a result, the stETH was put under great selling pressure. Putting Celsius in a weak position because it had deposited customer funds into the stETH.

If Celsius became insolvent and couldn’t pay its debts, it would have to sell its stETH. This would cause the stETH to fall in price and become worth less than ETH. This would mean MakerDAO’s 100 million DAI loan to Celsius would be lost.

MakerDAO has voted to disable the D3M to protect their lending power. This will prevent Celsius from borrowing more DAI tokens using stETH as collateral.

A proposal known as “proposal 83” suggests that. Aave might freeze the use of stETH as collateral on its platform, following the disabling of D3M.