MakerDAO founder Rune Christensen wants to transfer DAI’s collateralization away from USDC in light of the current Tornado Cash and frozen USDC addresses scandal.
The decentralized autonomous organization’s (DAO) members have been advised by MakerDAO founder Rune Chirstensen to “seriously consider” planning for the depeg of its DAI stablecoin from the US dollar (USD).
The founder made the remarks in response to the recently announced sanctions on cryptocurrency mixer Tornado Cash. On August 11, the founder said that the sanctions are “unfortunately more serious than I first thought,” adding that MakerDAO should get ready to depeg its native stablecoin DAI from the USD to avoid any risks related to Circle’s recent freezing of sanctioned USD Coin (USDC) addresses.
“I think we should seriously consider preparing to depeg from USD. It is almost inevitable it will happen and it is only realistic to do with huge amounts of preparation.”
The U.S. Office of Foreign Asset Control (OFAC) put 44 USDC addresses associated with the platform on its list of Specially Designated Nationals on August 8, thereby prohibiting citizens from using the Tornado Cash protocol.
Following the action, USDC issuers Circle locked the stablecoin connected to the 44 blacklisted addresses in the amount of $75,000 USD.
Approximately 50.1 percent of MakerDAO’s DAI is secured by USDC (according to Dai Stats) As Circle has demonstrated in the case of Tornado Cash that it will behave in accordance with United States law, Christensen has expressed concern regarding the asset’s excessive reliance on a centralized asset in USDC.
With a market cap of $7 billion, DAI is now the fourth largest USD-pegged stablecoin in cryptocurrency, making it the fifteenth largest asset overall.
Giving up USDC support
After the call, Yearn.finance core developer @bantg claimed that MakerDAO was thinking of turning all of the USDC from its peg stability module into $3.5 billion in ETH, which would result in more than 50% of DAI being backed by ETH, a significant increase from the current 7.3 percent.
The community objected to the concept, comparing MakerDAO to the troubled Terra (LUNA) project, which aggressively purchased Bitcoin (BTC) to support its Terra USD stablecoin before the project ultimately collapsed.
Vitalik Buterin, a co-founder of Ethereum, added his two cents, saying:
“Errr this seems like a risky and terrible idea. If ETH drops a lot, value of collateral would go way down but CDPs would not get liquidated, so the whole system would risk becoming a fractional reserve.”
Christensen later explained, however, that what he actually “wrote in the maker governance discord was that yoloing all the stablecoin collateral into ETH would be a horrible idea.”
Although he acknowledged that a “partial yolo” would still be wise, he added:
“I think slowly DCA’ing some collateral into ETH is an option that can be considered depending on the severity of the blacklisting risk, which I personally think is much higher after the TC blacklist… it would exchange blacklist risk for depeg and haircut risk.”
