In a big development, Rune Chirstensen, founder of MakerDAO has urged all the members to “seriously consider” preparing the depeg of the DAI stablecoin from the U.S. Dollar.
The comments came on the MakerDAO discord channel on Thursday, August 11, after the U.S. Treasury sanctioned crypto mixer Tornado Cash earlier this week. Post this, Circle – the issuer of USDC stablecoin – started freezing all the sanctioned USDC addresses.
As the OFAC banned residents from using Tornado Cash, while placing 44 USDC addresses under its sanctions list. As a result, Circle had to freeze $75,000 worth of stablecoins. On the MakerDAO Discord, Rune noted:
The sanctions are “unfortunately more serious than I first thought. 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.”
Interestingly, Rune also proposed converting those USDC into ETH. Currently, more than 50% of MakerDAO’s DAI stablecoin is collateralized by USDC. Thus, Rune expressed concern over this heavy dependence on a single stablecoin and a centralized asset.
With a market cap of $7 billion, DAI is currently the fourth-largest stablecoin in the market pegged to the U.S. Dollar.
Moving USDC to ETH, Vitalik Buterin Calls It A Terrible Idea
Yearn.finance core developer @bantg tweeted that MakerDAO might consider moving all its $3.5 billion USDC to ETH. Thus, more than 50% of DAI stablecoins shall be backed by ETH, jumping from the existing 7%.
MakerDAO is considering a $3.5 billion ETH market buy, converting all USDC from the peg stability module into ETH.
— banteg (@bantg) August 11, 2022
Soon after Rune’s proposal, the MakerDAO community reacted calling it another Terra in the making. Terra committed a similar mistake of backing all its USDT tokens with Bitcoin. With USDT undergoing a massive depeg, Terra had to liquidate all its BTC reserves.
Even Ethereum co-founder Vitalik Buterin has called this a risky proposition. Warning about it, Buterin said:
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.
However, Rune clarified that they are not completely going to transfer USDC to ETH. However, he still sticks to the idea of considering partial transfers.
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