The Aave community is currently voting on a proposal to remove certain stablecoins from Aave V2. ChaosLabs has put forward a plan to deprecate small-cap stablecoins like USDP and GUSD due to recent events that have highlighted the risks associated with these lesser-used stablecoins.

The proposal aims to address concerns about price manipulation and limited liquidity by disabling borrowing for USDP, GUSD, LUSD, FRAX, and sUSD. Additionally, various parameters such as reserve factors and base rates will be adjusted to encourage borrowers to repay their loans.

While community consensus has been reached, the proposal is still undergoing a snapshot vote until May 6 for final approval. Once approved, an Aave Improvement Proposal (AIP) will be submitted to implement the proposed updates.

This proposal comes in response to a surge in USDP’s price on exchanges like Coinbase and Binance, reaching above $1.20. Despite not being used as collateral, USDP remained a borrowable asset on Aave V2, leading to liquidations and instances of bad debt.

Stay tuned for more updates on this evolving situation as the Aave community continues to make decisions to strengthen the platform.

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