Aave Community Pushes Back On Proposal To Peg Ethena’s USDe Price To Tether’s USDT

A Jan. 2 proposal from Chaos Labs, a blockchain risk management platform, has faced stiff pushback from Aave community members who question its safety and potential implications.

The proposal, co-authored by Llamarisk, a decentralized finance (DeFi) risk management platform, seeks to hardcode Ethena’s USDe’s price to match USDT’s price on Aave’s price feed. The authors argue that doing so would protect Aave users from secondary market fluctuations.

Detractors argue that pegging USDe to USDT introduces risks due to the inherent differences between the two assets. While USDT is designed to hold a fixed value, USDe is not a stablecoin and operates under a different mechanism, relying on ETH-backed positions.

This proposal matters because Aave, as the largest DeFi lending platform with $23 billion in locked value, must carefully evaluate systemic risks. Any misstep could lead to significant liquidation issues or bad debt, impacting user trust and the protocol’s overall stability.

Aave is DeFi’s largest lending protocol, with $22 billion in total-value locked (TVL), according to DefiLlama. Ethena is the issuer of USDe, a stablecoin backed by ETH and short ETH positions.

Aave uses Chainlink’s USDe/USD market price feed for USDe’s pricing oracle, which “exposes the sUSDe-backed positions to USDe’s secondary market price deviations,” the proposal said. “While the setup adopted by Ethena for USDe makes this volatility unlikely, if it were to happen, it would present liquidation risks for Aave users and the protocol itself.” To solve this problem, Chaos Labs and Llamarisk propose to replace the USDe/USD secondary market price feed with a USDT/USD feed.

Aave Community Pushes Back

However, Aave community members disagreed with the proposal. One user, under the pseudonym Hazbobo, argued that the proposal was risky since USDe isn’t a stablecoin. They also asked if any previous examples of hardcoding prices for other assets existed.

Fixing USDe’s price to USDT on Aave could expose the protocol to unexpected volatility. Critics suggest that pegging increases the chances of cascading liquidations if the underlying collateral (ETH and short positions) fails to maintain liquidity under stress. This setup might transfer risks from users to the protocol itself, potentially leaving Aave’s treasury to absorb bad debts.

Another user, who uses the pseudonym ElliotNess, said the proposal's quality was disappointingly low and that the authors had not done due diligence on potential conflicts.

“In summary, this reads as an aggressive growth proposal aimed to onboard more e-mode (sUSDe) borrowing, disguised as a risk suggestion. If that’s what the AAVE delegates want, that’s fine, but depositors should be aware,” ElliotNess said.