Aave, the largest decentralized lending protocol, is proactively recalibrating its risk management in response to significant governance instability within the Ethereum layer-2 network, Scroll. This strategic move aims to protect Aave's users and liquidity pools from potential fallout stemming from the ongoing internal turmoil within Scroll's decentralized autonomous organization (DAO).
Aave Implements Protective Measures
The Aave Chan Initiative (ACI) has submitted a proposal to reduce Aave's exposure to Scroll's ecosystem. This comprehensive plan outlines several defensive measures, including raising the reserve factor for all listed assets to a conservative 90%. Additionally, the proposal suggests lowering supply caps to existing levels and cutting borrowing caps for all borrowable assets on Scroll. These steps are designed to contain exposure to Scroll-based assets, reinforce protocol safety through more conservative risk parameters, and enable Aave to respond swiftly if governance disruptions escalate. Given that Aave currently holds approximately $6 million in total value locked (TVL) on Scroll – one of its smaller liquidity pools – the proposal is set to be implemented rapidly via the Direct to AIP process to address the urgency of the situation.
Scroll's Governance Undergoing Redesign
The catalyst for Aave's decisive action is the unfolding leadership turbulence and internal strife within Scroll's DAO. Scroll recently announced a halt on new proposals within its governance framework, citing a plan to redesign its governance model. This pause is intended to allow for experimentation with new models that emphasize efficiency, effectiveness, and alignment, while simultaneously safeguarding short-term stability and laying groundwork for sustainable growth. However, this move follows the recent resignation of the DAO's lead, Eugene, which has reportedly left the Scroll community facing considerable uncertainty. Several crucial proposals, including initiatives for treasury management and the formation of a governance council, have consequently stalled, underscoring the severity of Scroll's governance challenges.
