Vitalik Buterin, who is bullish on Ethereum, branded the suggestion made by Rune Christensen a “bad idea.”
Recently, Rune Christensen, a co-founder of MakerDAO, suggested eliminating all USDC from the DAI stablecoin’s peg-stability module. He advised that the $3.5 billion of USDC contained inside be utilized to purchase ETH instead.
Even though such a transfer may increase the value of ETH, Vitalik Buterin deemed it a “bad idea.”
Rune Christensen Opposes Getting Rid of USDC Exposure
Rune voiced his worries about the most recent penalties imposed by the US Treasury Department against the privacy protocol Tornado Cash in the governance channel of MakerDAO’s official Discord.
CEO of Circle, Jeremy Allaire, said on Tuesday that the Bank Secrecy Act’s restrictions have obliged Circle (the issuer of USDC) to comply with the Treasury Department’s penalties against Tornado Cash. Therefore, it made use of its power to freeze USDC at all sanctioned locations and affiliated companies.
Since then, the cryptocurrency community has started talking about the dangers of centrally-issued stablecoins, which are vulnerable to government censorship, enforcement, and capture.
DAI, on the other hand, is a “decentralized” stablecoin supported by a limited number of digital assets.
While around half of its holdings are made up of USDC, the other half is made up of ETH and other less centralized cryptocurrencies.
The danger of Circle freezing MakerDAO’s assets might theoretically be removed by changing USDC reserves into ETH, which would also increase the value of ETH.
Vitalik Buterin, a co-founder of Ethereum, is opposed to the idea made by Rune Christensen, nevertheless.
Decentralizing Stable Coins
The company also said that by diversifying reserves such that no asset makes up 20% of the total, DAI might reduce the hazards of centralization. As an alternative, he proposed imposing a “negative interest rate” on DAI to control its expansion.
Rune Christensen acknowledged on MakerDAO’s Discord that the conversion would raise the possibility of DAI losing its dollar peg, but he still thinks a “partial uprooting” might be advantageous.
“I think the market may finally start to reward decentralization to the point where these risks are acceptable because USDC is no longer the no-brainer it used to be.”
Since TerraUSD (UST), the previous third-largest stablecoin, failed in May, concerns about decentralized and “algorithmic” stablecoins have proliferated.
The very volatile LUNA was used to back the token inadvertently, but as pressure was applied to both assets’ values, the token collapsed.
The LUNA Foundation Guard carried out a similar strategy to Runes by purchasing enormous amounts of Bitcoin for its stablecoin reserves months before TerraUSD’s implosion. It eventually had to sell the Bitcoin, despite its best efforts to keep UST’s nascent peg safe.
