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‘No Immediate Risk’ to Aave From BUSD Halt
The Decentralized Autonomous Organization (DAO) for Aave Protocol is weighing a proposal to freeze BUSD reserves following news that Paxos Global will stop minting the Binance-branded stablecoin on Ethereum.
The proposal from Marc Zeller of Aave Chan Initiative states that the circulating supply of BUSD will eventually go toward zero because in the future Paxos will only allow redemption of BUSD in exchange for burning BUSD.
“As there’s no real prospect of growth and the inability to mint new BUSD might hurt peg arbitrage opportunity and asset peg. It seems that the most reasonable path for Aave is to freeze this reserve and invite users to switch to another stablecoin among the diversity present in Aave,” according to the proposal.
Aave is the largest decentralized lending protocol in crypto, with nearly $7 billion Total Value Locked (TVL), including $5.8 billion on Ethereum, according to DefiLlama.
The proposal states BUSD is not an asset with borrowing power on Aave and does not present an “immediate risk for the protocol.”
The proposal before the Aave DAO is an early reaction to the cessation of BUSD minting and reports that the U.S. Securities and Exchange Commission may sue Paxos. Other protocols, including the Binance centralized exchange, will grapple with what to do about BUSD in the coming days, weeks, and months.
The ACI might consider to build a proposal to freeze BUSD reserve, that will allow everyone to repay and withdraw but no further deposit and borrow.
— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) February 13, 2023
Until we have more info.
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