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DAI wants to change its USDC reserves and Vitalik thinks it is a bad idea

Written by ebookingservices

Key facts:
  • MakerDAO is the decentralized organization behind DAI.

  • DAI holds more than $3.5 billion USDC of reserves in collateral.

MakerDAO, the organization behind DAI, a decentralized stablecoin, is considering trading all of its reserves into USD Coin (USDC), which is about $3.5 billion and represents 49% of its reserves. A decision that could lead to the stablecoin losing its parity with the US dollar if the process does not go well.

The proposal is given after Circle, the company behind USDC, decided to freeze all USDC within addresses related to Tornado Cashafter the United States Treasury decided to sanction this platform.

For MakerDAO founder Rune Christensen, this movement by Circle is a type of censorship, which has set off alarm bells in the organization. Due to this, they have been cornered to look for a solution that does not make them depend on the decisions of this company, one of them being to sell all the USDC that DAI holds as collateral.

For Christensen, this scenario is “inevitable”. Nevertheless, sell such amount of USDC from your reserves, could cause DAI to lose its parity with the dollar. To this, the founder of MakerDAO considers that it is a risk that the community must assume, everything is for the good of DAI.

Before such a proposal is executed, this must go through a community vote taking into account that MakerDAO bases its structure on a decentralized autonomous organization (DAO), so MKR (platform governance token) holders will have the last word on this decision.

However, Mariano Conti, who has worked closely with MakerDAO, commented yesterday at the ETHLatam conference, held in Buenos Aires, Argentina, that the majority of MKR is in the possession of the founders of the platform. “They decentralized the platform, but centralized the governance,” he commented. This type of scenario opens up the possibility that MakerDAO makes a decision that the community does not share.

Vitalik Buterin thinks this is a very bad idea

The opinions of personalities about this idea were immediate. One user, @banteg, who took it upon himself to leak Christensen’s conversations, rumored that it is possible that the $3.5 billion that MakerDAO holds in USDC will be exchanged for ETH.

The co-founder of Ethereum himself, Vitalik Buterinanswering this rumour, commented that this would be a “risky and terrible idea”. Given that, with such a volume of demand, the price of guarantees would drop excessivelybeing able to convert the collateral into “fractional reserves” that They could end up breaking the system. It should be noted that currently, of the total collateral in DAI, only 7.4% is in ETH.

Buterin believes that no type of collateral should exceed more than 20% in ETH. Taking into account that it is a volatile asset.

For now, it remains to be seen if the collateral exchange proposal is made public, and the destination of more than USD 3.5 billion in USDC.

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