Depegging DAI From USD Should Be Seriously Considered, Founder says

Depegging DAI from USD should be seriously considered according to founder Rune Christensen. He stated that he wants to transfer DAI’s collateralization away from USDC in light of the current Tornado Cash and frozen USDC addresses scandal.

The decentralized autonomous organization’s (DAO) members have been advised by MakerDAO founder Rune Chirstensen to “seriously consider” planning for the depeg of its DAI stablecoin from the US dollar (USD).

Depegging DAI From USD Should Be Seriously Considered

The founder made the remarks in response to the recently announced sanctions on cryptocurrency mixer Tornado Cash. On August 11, the founder said that the sanctions are unfortunately more serious than I first thought, adding that MakerDAO should get ready to depeg its native stablecoin DAI from the USD to avoid any risks related to Circle’s recent freezing of sanctioned USD Coin (USDC) addresses.

“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.”

The U.S. Office of Foreign Asset Control (OFAC) put 44 USDC addresses associated with the platform on its list of Specially Designated Nationals on August 8, thereby prohibiting citizens from using the Tornado Cash protocol.

rune: we should seriously consider depegging from usd pic.twitter.com/HBMrPH7LrW

— banteg (@bantg) August 11, 2022

Following the action, USDC issuers Circle locked the stablecoin connected to the 44 blacklisted addresses in the amount of $75,000 USD.

Aproximately 50.1% of MakerDAO’s DAI is secured by USDC (according to Dai Stats) Since Circle has demonstrated that it will act in line with US law in the example of Tornado Cash, Christensen has expressed concern regarding the asset’s excessive reliance on a centralized asset in USDC.

With a market cap of $7 billion, DAI is now the fourth largest USD-pegged stablecoin in cryptocurrency, making it the fifteenth largest asset overall.

Giving up USDC support

After the call, @bantg, a core developer for Yearn.finance, claimed that MakerDAO was considering converting all of the USDC from its peg stability module into $3.5 billion in ETH, which would result in a significant increase in the percentage of Ether (ETH) backing DAI to over 50% from its current 7.3%.

The community objected to the concept, comparing MakerDAO to the troubled Terra (LUNA) project, which aggressively purchased Bitcoin (BTC) to support its Terra USD stablecoin before the project ultimately collapsed.

Vitalik Buterin, co-founder of Ethereum, stated on the matter:

“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.”

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