In an effort to promote the use of the USDC, Paxos has proposed an agreement to MakerDAO for greater use of its stablecoin in the collateralization of the IAD. One of the arguments put forward is a decrease in dependence on the USDC.
Paxos reaches out to MakerDAO to promote USDP
In an effort to promote the use of its stablecoin, Paxos has opened a discussion on the MakerDAO governance forum to increase the use of USDP to $1.5 billion in DAI collateralization.
DAI is the first decentralized stablecoin in the ecosystem, and its algorithmic operation has proven itself in recent years. Indeed, in order to issue new tokens, it is necessary to provide collateral, in the manner of a loan on Aave for example. When this collateral is not respected, a liquidation system is set up to ensure the good health of the DAI.
The idea is to promote a greater use of USDP in this mechanism, in exchange for which Paxos will offer 45% of the US federal rate as a marketing fee. With a current rate of 4.3%, Paxos estimates that this agreement would bring $29 million per year to MakerDAO, paid in USDP.
The choice of indexing the fees to the key rates is not trivial. The USDP operates in a centralized manner, and a large part of its capitalization is guaranteed by US Treasury bonds whose yield depends on these rates.
Diversification from the USDC
If such a deal were to happen, Paxos argues that it would allow DAI to diversify away from its exposure to the USDC. The latter is often a reason for “criticism” of DAI, because of its importance in the collateralization of this stablecoin, namely about 30% according to Paxos.
While it is indeed interesting for MakerDAO to diversify its risk in terms of centralized players, let’s qualify this statement. Indeed, Paxos has similarities with Circle, the issuer of the USDC, in the way it issues its USDP, and is also a centralized player.
To date, $1.5 billion represents nearly 30% of the DAI’s capitalization, and this cap is expected to rise to $2 billion by 2023. Nevertheless, stablecoin’s capitalization is expected to swell as its use increases, as the market really picks up, diluting the USDP’s share of the collateralization.
If an agreement is reached, it will be signed with the Real World Asset (RWA) Foundation, which represents MakerDAO for business partnerships with corporate entities.
These discussions are still in the proposal stage, and it is still too early to know whether these terms will be accepted by MakerDAO’s governance. However, it is interesting to observe that many ways of securing DAI revolve around the protocol, which tends to strengthen it in case of failure of one of these collateral elements.
