tl;dr
Aave is tightening risk controls in response to instability in Scroll's governance model. The Aave Chan Initiative (ACI) proposed measures such as increasing the reserve factor to 90%, lowering supply caps, and reducing borrowing caps. These steps aim to protect Aave's users and liquidity pools. S...
**Aave Tightens Risk Controls Amid Scroll Governance Turmoil**
Aave, the leading decentralized lending protocol, is taking a proactive stance to shield its users and liquidity pools from the growing instability in Scroll’s governance model. The move, proposed by the Aave Chan Initiative (ACI) on Sept. 11, comes as Scroll’s decentralized autonomous organization (DAO) grapples with internal turmoil, raising urgent questions about the future of DeFi governance.
The ACI’s proposal outlines a series of defensive measures aimed at minimizing Aave’s exposure to risks tied to Scroll’s ecosystem. Key steps include:
- **Raising the reserve factor** for all listed assets to 90%, ensuring a larger portion of user deposits is held as a buffer.
- **Lowering supply caps** to existing levels, limiting the amount of liquidity that can be added to Scroll-based assets.
- **Cutting borrowing caps** for all borrowable assets, reducing the potential for excessive debt accumulation.
These changes, ACI argues, will help contain risks, reinforce protocol safety, and enable Aave to respond swiftly if governance disruptions worsen. The proposal will be implemented through the Direct to AIP process, a streamlined mechanism designed for rapid deployment of urgent changes.
**Scroll’s DAO in Crisis Mode**
The urgency behind Aave’s actions stems from a series of governance-related setbacks at Scroll. Earlier this week, the DAO announced it would **pause new proposals** as part of a broader effort to redesign its governance model. The decision aims to prioritize efficiency, effectiveness, and alignment while safeguarding short-term stability.
However, the pause has left the community in limbo. Olimpio, a Scroll delegate, revealed that the DAO’s lead figure, Eugene, **resigned earlier in the week**, exacerbating uncertainty. Several critical proposals—ranging from treasury management reforms to the formation of a governance council and a test of a DAO timelock mechanism—are now stalled.
Scroll’s leadership emphasized that already approved proposals will proceed, but the pause underscores the fragility of its governance structure. With Aave holding **$6 million in total value locked (TVL)** on Scroll—its smallest liquidity pool—Aave’s decision to tighten risk parameters is a clear signal of the challenges facing DeFi protocols entangled with unstable governance models.
**A Test for DeFi Governance**
This episode highlights a broader tension in the DeFi space: the delicate balance between innovation and stability. While DAOs are designed to empower decentralized decision-making, they remain vulnerable to leadership shifts, community discord, and the slow pace of governance.
For Aave, the proposal is a pragmatic response to a crisis. By adopting conservative risk parameters, the protocol aims to protect users even as Scroll navigates its governance overhaul. Yet the situation also raises a critical question: Can DeFi ecosystems sustain long-term growth without addressing the inherent fragility of their governance models?
As Scroll works to redefine its approach, Aave’s actions serve as a cautionary tale—and a blueprint—for how protocols can safeguard their users in the face of uncertainty. For now, the focus remains on stability, with the hope that both Aave and Scroll can emerge from this turbulence stronger.