MakerDAO files emergency proposal addressing 3.1B USDC exposure

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Accord­ing to a forum post from Mak­er­DAO, the issuer of the U.S. dol­lar-pegged DAI (DAI) sta­ble­coin, on March 11, the firm request­ed an “urgent exec­u­tive pro­pos­al to mit­i­gate risks to the pro­to­col.“ Mak­er said it pos­sessed mul­ti­ple col­lat­er­als “exposed to USDC tail risk” in light of the extra­or­di­nary depeg­ging of the USD Coin (USDC) sta­ble­coin that began on March 10. Mak­er­DAO cur­rent­ly has over $3.1 bil­lion worth of USDC in col­lat­er­al back­ing DAI.

First­ly, Mak­er pro­pos­es reduc­ing the debt ceil­ing of UNIV2USDCETH‑A, UNIV2DAIUSDC‑A, GUNIV3DAIUSDC1‑A and GUNIV3DAIUSDC2‑A liq­uid­i­ty provider col­lat­er­als to 0 DAI. Next, Mak­er wants to reduce the dai­ly mint­ing lim­its of its USDC peg sta­bil­i­ty mod­ule from 950 mil­lion DAI to 250 mil­lion DAI, and increase the fee from 0% to 1% to pre­vent “exces­sive dump­ing of USDC.“ Anoth­er sta­ble­coin mod­ule, GUSD, will also see its dai­ly mint­ing lim­it reduced from 50 mil­lion DAI to 10 mil­lion DAI if the pro­pos­al passes.

Mak­er also wants to elim­i­nate expo­sure to decen­tral­ized finance pro­to­cols Curve and Aave in their entire­ty. Accord­ing to Mak­er, Curve “uses a fixed $1 price for USDC,” which “presents a risk of bad debt accru­al and poten­tial­ly bank runs with cas­cad­ing mar­ket insol­ven­cy if the mar­ket price of USDC falls sig­nif­i­cant­ly below the cur­rent col­lat­er­al fac­tor.” While Aave does­n’t pos­sess such risks, Mak­er nev­er­the­less stat­ed that its “over­all risk-reward of deposit­ing funds into the D3M are not favor­able under cur­rent conditions.”

Final­ly, Mak­er pro­pos­es to increase the pro­to­col’s debt ceil­ing to the USDP sta­ble­coin issued by Pax­os from 450 mil­lion DAI to 1 bil­lion. The firm wrote:

“Pax­os has rel­a­tive­ly stronger reserve assets ver­sus oth­er avail­able cen­tral­ized sta­ble­coins, con­sist­ing pri­mar­i­ly of U.S. trea­sury bills, reverse repur­chase agree­ments col­lat­er­al­ized by U.S. trea­sury bonds. They face rel­a­tive­ly low­er poten­tial for impair­ment ver­sus oth­er avail­able stablecoins”

On Mar. 10, USDC depegged from the U.S. dol­lar after its issuer, Cir­cle, dis­closed it had $3.3 bil­lion worth of funds col­lat­er­al­iz­ing the sta­ble­coin stuck on now-defunct Sil­i­con Val­ley Bank. At the time of pub­li­ca­tion, USDC is cur­rent­ly trad­ing at $0.9025. In light of the news, the DAI sta­ble­coin has also degged to $0.9235.

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