MakerDAO considers ditching USD after Circle banned USDC addresses

MakerDAO wants to ditch USD after Circle banned USDC addresses

According to MakerDAO co-founder and cryptocurrency expert Rune Christensen, the DAI stablecoin may free itself from its USD peg by selling all its USD Coin (USDC) holdings. Christensen made the comments on Thursday on MakerDAO’s official Discord channel.

MakerDAO might convert USDT to ETH

The DAI stablecoin is currently backed by USDC at a rate of 50%, according to Daistats.

The co-founder of MakerDAO has said that the recent US Treasury penalties against crypto mixing provider Tornado Cash have prompted them to think about making the switch. Christensen claims the consequences are worse than he had anticipated. 

The DAI stablecoin will lose its US dollar exposure if it reduces the USDC collateral. The “price stability module,” or PSM, keeps DAI’s exchange rate set at the moment. Using the PSM, you may mint DAI at a predetermined rate in exchange for valid collateral like USDC or Ether (ETH). Because of the fixed interest rate, more than $1 in collateral is needed to create $1 in DAI.

Scalability vs Decentralization

Christensen polled his listeners on August 9 over a USD peg, non-USD tied collateral, and scalability, asking them to choose two. Maker learned this the hard way when it started out accepting ETH solely as collateral and had scalability problems due to the mismatch between the USD peg and the collateral.

Maker needed USD-linked collateral to expand DAI efficiently; therefore, USDC was introduced. Christensen seems to think that the USD peg needs to be broken for stablecoins backed by assets other than the US dollar to be widely used.

Among other assets, MakerDAO’s governance community is considering converting the USDC holding to ETH. MakerDAO delegate and crypto investor Mika Honkasalo predicts that the huge ETH purchase “won’t materialize, but measures to lower the collateral risk will become more crucial.”

DeFi is an umbrella term for various financial instruments that facilitate the non-custodial buying, selling, borrowing, and lending of assets without the need for a central bank or other trusted third party. Due to its widespread acceptance as a safe investment, USDC is often utilized as security in DeFi. But as shown this week, stability can come at the cost of centralization.

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