In light of Paxos' decision to stop minting BUSD, the Aave community is now debating a proposal to freeze the BUSD reserve on the Aave V2 market. On February 13, BUSD's issuer Paxos declared that it would stop minting BUSD as of February 21, 2023, but that the token would continue to be fully supported by Paxos and receivable by consumers through at least February 2024.
Marc Zeller, the Aave integration lead, has proposed freezing the BUSD holding on Aave V2 because he thinks the amount of BUSD in circulation would eventually drop to zero because there is no chance for BUSD to grow further.
“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,” Marc said.
Currently, the Aave V2 Ethereum market supplies roughly $11.57 million worth of BUSD, whereas the DAO collector contract holds about $10,500 BUSD. The proposition will go through the usual governance procedure, and the Aave community will decide which is the best option to keep the DAO Treasury. After the Paxos-BUSD freeze, Binance CEO Changpeng Zhao stated that if the problem persisted, his exchange might stop utilizing BUSD as the main trade pair.
About Aave
Users can borrow and lend cryptocurrencies on the decentralized Aave platform. Smart contracts are used by Aave to automate the procedure, and they contain pre-set guidelines for how money is allocated, how collateral is managed, and how charges are calculated.
Aave focuses in overcollateralized loans, which means that customers must deposit cryptocurrency worth greater than the sum they want to borrow. This shields lenders from the financial consequences of loan defaults and enables the Aave protocol to sell the security if its value falls too low.
AAVE, the company's native cryptocurrency token, is also available via Aave and may be sold on most exchanges or staked in the Aave platform to generate interest. Cryptocurrency miners are compensated for confirming transactions on a proof-of-stake blockchain, such as the one that powers Aave, by staking.
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