MakerDAO should ‘seriously consider’ depegging DAI from USD: Founder

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MakerDAO founder Rune Christensen has urged members of the Decentralized Autonomous Organization (DAO) to “seriously consider” preparations for the depause of its DAI stablecoin from the United States Dollar (USD).

The founder’s remarks came in light of the recently announced restrictions on cryptocurrency mixer Tornado Cash, with MakerDAO’s Discord channel noting on August 11 that the restrictions are “unfortunately more severe than I thought”, adding that they should Your core stablecoin should be ready to withdraw. USD to DAI to avoid any risks associated with the recently approved USDC coin (USDC) addresses freeze by Circle.

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“I think we should seriously consider preparing to withdraw from the USD. It is almost inevitable that this will happen and it is only realistic to do so with enormous amounts of preparation.”

On August 8, the US Office of Foreign Asset Control (OFAC) officially barred residents from using the Tornado Cash protocol, while placing 44 USDC addresses associated with the platform on its list of specially designated citizens.

Following the move, USDC Issuer Circle froze $75,000 worth of stablecoins tied to 44 accepted addresses.

Approximately 50.1% of MakerDAO’s DAI is collateralized by USDC (according to Die Stats). Whirlwind Cash.

DAI is currently the fourth largest USD-pegged stablecoin in crypto, with a current market cap of $7 billion, and this figure places it as the fifteen largest asset overall.

Lowering USDC Support

After the call, Yearn.finance core developer @bantg suggested that MakerDAO was considering converting all of its USDC from its peg stability module into ETH for $3.5 billion, which would result in more than 50% of DAI being backed by Ether (ETH), a massive jump from 7.3% currently Is.

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The proposed idea drew criticism from the community, with MakerDAO comparing it to the troubled Terra (LUNA) project, which aggressively bought bitcoin (BTC) to back its Terra USD stablecoin before the project eventually faltered.

Ethereum co-founder Vitalik Buterin also chimed In, stating:

“Mistake this sounds like a risky and terrible idea. If ETH drops too low, the value of the collateral will drop a lot, but the CDP will not be liquidated, so the whole system runs the risk of becoming a fractional reserve.”

However, Christensen later clarified that he did in fact “write in the Maker Rule controversy that adding all stablecoin collateral to ETH would be a bad idea.”

Although he confirmed that “partial YOLO” might still be a good idea, note:

“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… Will exchange blacklist risk for depeg and haircut risk.”