Insights on Governance Mechanisms in Defi Lending, including Frax and AAVE, from CRV Collapse

Twitter user @0xLoki compared risk governance mechanisms of different Defi platforms based on the CRV collapse:

Fraxlend: Leading from the Start

Frax's initial mechanism was well-designed, with risk isolation and dynamic interest rates, requiring no additional measures. Michael himself took the initiative to repay. Even borrowing more money from AAVE and selling coins OTC requires repayment. Fraxlend's mechanism is the most effective and fair (pre-determined mechanism).

AAVE: Fair but Not Fully Effective

As the largest creditor, AAVE has some ongoing debates in the governance forum. The current consensus is to lower Curve's LTV to 0 and freeze new borrowings. However, other proposals, such as lowering LT (liquidation threshold) and raising interest rates, still face significant disputes.

Abracadabra: Money-Oriented Approach

The approach is straightforward and aggressive - freeze liquidations, increase interest rates, and directly deduct funds from the account if not repaid. The freeze on liquidations was deployed after five votes. It can be considered very decentralized and authoritarian, but indeed effective, as not repaying results in a daily deduction of $9,800 worth of $CRV.

Inverse: Inactive and Silent Governance Forum

In the prisoner's dilemma of this lending platform, Fraxlend has almost reached the finish line, and abracadabra is leading among the remaining competitors.