DeFi. It’s a buzzword, it’s a revolution, and for many, it’s a scary black box. And right at the center of it all is Aave, with its lending/borrowing code. And now, it's doubling down on USDT. Could this be their first step towards real financial inclusion? Or replacing sinking ships for those who are still setting sail.

DeFi for the Forgotten?

Let's be honest, the current financial system wasn't exactly designed with everyone in mind. High fees, complicated and confusing paperwork, and geographic restrictions shut out millions—billions even. Aave, theoretically, could change that. Consider the case of a single mom in Nigeria, who wouldn’t be able to get a conventional bank loan to scale her local business. On Aave, she’s able to use USDT as collateral. This lets her access the capital she needs most urgently and with the least red tape and gatekeepers in the way possible.

Dreams are fragile. The reality is far more nuanced. We have to question whether we’re genuinely empowering these people. Are we providing them with a new shiny tool, or are we simply allowing them to continue to shovel themselves into an even deeper hole. While Aave’s user interface can be overwhelming, the idea of liquidation ratios is even more intimidating. Are we doing enough to educate and provide alternative options to these users so that they know the dangers they are putting themselves in?

Consider Ellyna, a hypothetical artisan from Ecuador. She’s somewhat familiar with DeFi but is overwhelmed by the language of the industry. She views USDT on Aave as an instrumental step to scaling her business outside her local markets. Yet, she has a hard time grasping what it means to be affected by changing interest rates and the fearsome “health factor.” Without this information she stands to be just as quickly liquidated, with all of her staked assets disappearing. Is that really the inclusion we want to be promoting?

USDT, the stablecoin darling, is the crypto industry’s most persistent pitch as a safe haven in the choppy waters of volatile crypto seas. And yes, its relative stability is precisely why it is such an attractive collateral option on Aave. Add to that the current skepticism surrounding its reserve count. There’s the concern out there through regulatory scrutiny and the ability for these potential unknown black swan events.

USDT: Stable Savior or Ticking Time Bomb?

It's like offering someone a life raft made of cardboard. That can work for a short time, but it is anything but a sustainable fix.

Making USDT more deeply embedded into Aave is effectively tying the platform’s success to the success of Tether. If USDT were to suddenly de-peg, say 5%, the damage done to Aave and its users would be disastrous. The threat of cascading liquidations, a DeFi domino effect, is a dark possibility that keeps core builders up at night.

Are we really willing to risk the stability of the whole Aave ecosystem? This risk is placed on the shoulders of an opaque, ill-fated stablecoin.

Banning USDT from Aave isn’t going to do the trick. Blindly embracing it, though, as the new savior of financial inclusion isn’t it, either. The solution, as ever, is through education and responsible adoption.

Education First, Euphoria Later

The future of DeFi hinges on our ability to build a system that is truly inclusive, not just superficially so. We need to lead with education and take the steps needed to reduce the hazards. Let’s make sure these advancements work for all of us, not just an elite few. Let’s not repeat the mistakes of the legacy financial system. Second, we need to make sure the rich don’t keep getting richer and the poor getting poorer along with it. Together, let’s create a DeFi ecosystem that uplifts us all, whether we’re rich or poor, old or young, crypto-native or not. Let's not forget the forgotten voices.

Here's what you can do:

  • Demand Transparency: Push for greater transparency from Tether regarding USDT reserves. Hold them accountable.
  • Educate Yourself (and Others): Understand the risks and rewards of using Aave with USDT. Share that knowledge with others, especially those who are new to DeFi.
  • Support Responsible Innovation: Advocate for DeFi platforms that prioritize user education and risk mitigation.
  • Start Small: Advise newcomers to start with small amounts and gradually increase their exposure as they gain experience.
  • Diversify: Don't put all your eggs in one basket. Diversify your collateral and borrowing positions.

The future of DeFi hinges on our ability to build a system that is truly inclusive, not just superficially so. That means prioritizing education, mitigating risks, and ensuring that the benefits of this technology are shared by all, not just a select few. Let’s not repeat the mistakes of the traditional financial system, where the rich get richer and the poor get poorer. Let's build a DeFi ecosystem that empowers everyone, regardless of their background or financial status. Let's not forget the forgotten voices.