Following Circle’s recent blocking of some wallets, MakerDAO founder Rune Christensen said a solution to replace USDC for collateralizing DAI must be found quickly. Concerned about the power of regulators, stablecoin may even abandon any USDC-based model.
MakerDAO Responds to Circle’s Recent Decision
The shockwave caused by the recent blacklisting of cryptocurrency mixer Tornado Cash by the Office of Foreign Assets Control (OFAC) continues to take its toll, and in particular is causing significant concern among various decentralized finance (DeFi) players.
This is especially true since OFAC’s decision was supported by Circle, the issuer of the stablecoin USDC, which is none other than the second most capitalized stablecoin on the market behind the USDT. Three days ago, on August 9, Circle decided to freeze 38 wallets that had interacted with Tornado Cash, which at the time amounted to about $75,000.
This decision has been widely criticized, with some citing a certain zeal on the part of the American giant, as Circle was not, in fact, obliged to blacklist the said addresses. In fact, it is more of a preventive measure to ensure its back to the regulators.
Already, some commentators had not failed to imagine what such decisions taken on the fly could imply, taking the example of DAI, Maker’s stablecoin largely collateralized by the USDC: what would happen if the USDCs in question were ever frozen and caused a depeg of DAI?
A scenario not unlike the downward spiral Terra found itself in earlier this year.
Could MakerDAO abandon the dollar?
According to a recent statement by Maker founder Rune Christensen on the project’s Discord server, it may well be that DAI will abandon not only a USDC-based model, but perhaps even any stablecoin dependent on the US dollar.
“I’ve done a lot of research into the consequences of the TC [Tornado Cash] ban, and unfortunately it could turn out to be much more serious than I first imagined. […] We should seriously consider moving away from the USD. This is inevitable […].”
Reliance on such a fragile stablecoin from regulators could indeed bring very heavy damage to not only DAI, but the entire cryptocurrency ecosystem, and for good reason, DAI’s total locked-in value (TVL) is close to $11 billion.
As such, stablecoin is present in all 4 corners of decentralized finance, and the repercussions of a potential depeg for a stablecoin of this scale could be immeasurable. Today, most of the collateralization of DAI is provided by the USDC.
Thus, Rune Christensen proposed to convert the USDC in question into Ethers, most likely due to the bullish sentiment regarding the 2nd most capitalized cryptocurrency in the market behind Bitcoin (BTC) due to the arrival of Merge.
However, this solution was strongly advised against by Vitalik Buterin himself on Twitter:
“This sounds like a terrible and risky idea. If ETH loses a significant amount of its value, the value of the collateralization could fall but the CDPs [Collateral Debt Positions] won’t be liquidated, so the whole system could become a fractional reserve.”
In response, the founder of MakerDAO posted a tweet explaining that indeed, transferring all USDCs into ETH was probably not a good idea. However, he did not rule out buying at least some of it, especially through the dollar cost averaging (DCA) strategy.
In any case, we should continue to hear about the DAI, with the USDC issue still to be resolved regarding the collateralization of Maker’s stablecoin.
