The Aave decentralized autonomous organization (AaveDAO) is currently debating the collateral limits for Dai within their platform. Chaos Labs, a risk management consultant, has put forth a proposal to decrease Dai loan-to-value ratios by 12%, while Aave Chan initiative founder Marc Zeller had earlier suggested a 75% reduction.

Aave is a cryptocurrency lending platform that operates across various blockchain networks, allowing users to borrow in one cryptocurrency while using another as collateral. AaveDAO is governed by holders of the Aave token. Dai, an algorithmic stablecoin, is backed by various forms of crypto collateral including USDC, Ethereum, among others, and is issued through the Maker protocol governed by MakerDAO.

On April 2, MakerDAO faced criticism after minting 600 million DAI and depositing it in a vault with the Morpho protocol. MakerDAO had proposed increasing the vault's minting limit to 1 billion DAI through a forum post on April 1.

The debate primarily centers around the risk associated with eUSD, the stablecoin backing the newly minted Dai. Despite MakerDAO's assurance that eUSD offers stable collateral, critics argue against the use of eUSD claiming it poses risks to the system.

A proposal put forward by Zeller on April 2 suggests setting the Aave LTV for Dai at zero rather than the current 75%, effectively prohibiting Dai as collateral for new Aave loans. However, the proposal is still under discussion and has not proceeded to a formal vote.

Chaos Labs recommended a 12% reduction in LTV for Dai on April 5, enabling borrowers to use Dai as collateral with a higher collateral-to-loan ratio to offset perceived risks. Currently, Dai depositors can borrow up to 75% against their Dai, but the proposal would reduce this to 63%.

The stability of eUSD, protected through Lido Staked Ether and futures short positions, remains a topic of debate. While protocols assert that it's "delta neutral," critics caution about under-collateralization risks during a bear market or stETH devaluation.

During a public forum on April 3, discussions involving MakerDAO, Ethena, Morpho, and Aave Chan took place, addressing concerns over the risks eUSD may introduce to the ecosystem. No formal vote has been scheduled yet for the proposal to adjust Dai LTV in Aave.