According to a forum post by Maker DAO, issuer of the US dollar-indexed stablecoin DAI, on March 11, the firm requested an “urgent executive proposal to mitigate the risks of the protocol.” Maker said it held multiple collaterals “exposed to USDC tail risk” in light of the extraordinary de-pegging of the USD Coin (USDC) stablecoin that began on March 10. Maker DAO currently holds over USDC 3.1 billion in collateral backing its DAI stablecoin.
Firstly, Maker proposes to lower the debt ceiling of the collateral liquidity providers UNIV2USDCETH-A, UNIV2DAIUSDC-A, GUNIV3DAIUSDC1-A and GUNIV3DAIUSDC2-A to 0 DAI. Next, Maker wants to lower the daily mint limits of its USDC peg stability module from 950 million DAI to 250 million DAI and increase the commission from 0% to 1% to prevent “excessive USDC dumping”. Another stablecoin module, GUSD, will also see its daily mint limit reduced from 50 million DAI to 10 million DAI if the proposal is approved.
Maker also wants to remove exposure to the Curve and Aave decentralized finance protocols entirely. According to Maker, Curve “uses a fixed price of $1 for USDC,” which “presents a risk of bad debt accumulation and potentially cascading market-insolvent bank runs if the USDC market price falls significantly below factor current warranty”. Although Aave bears no such risks, Maker nonetheless states that “the overall risk-reward ratio of depositing funds into the D3M is not favorable under current conditions.”
Finally, Maker proposes to increase the debt ceiling of the protocol with the stablecoin USDP issued by Paxos from 450 million DAI to 1,000 million. The firm wrote:
“Paxos has relatively stronger reserve assets compared to other available centralized stablecoins, consisting primarily of US Treasury bills, reverse repurchase agreements collateralized by US Treasury bonds. Their downside potential is relatively less than the from other available stablecoins”.
On March 10, USDC de-pegged from the US dollar after its issuer, Circle, revealed that it had $3.3 billion worth of funds collateralizing the stablecoin locked up at the now-defunct Silicon Valley Bank. At press time, USDC is currently trading at $0.9025. In light of the news, the DAI stablecoin is also down to $0.9235.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.
