Rune Christensen, the founder of MakerDAO, has urged members to seriously consider de-pegging of the DAI stablecoin from the US dollar. His comments come in light of the sanctions on crypto mixer Tornado Cash. DAI is the fourth largest USD-pegged stablecoin in crypto. It has a market cap of $7 billion.
MakerDAO’s Discord channel stated that the sanctions are unfortunately more serious. It said the platform should prepare 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. MakerDAO said it’s almost inevitable that it will happen and it’s only realistic to do with huge amounts of preparation.
The US Office of Foreign Asset Control (OFAC), on August 8, officially prohibited residents from using the Tornado Cash protocol and placed 44 USDC addresses linked with the platform on the list of Specially Designated Nationals. As such, Circle, the parent company of USDC, froze $75,000 worth of the stablecoin linked to the 44 sanctioned addresses.
About 50.1% of MakerDAO’s DAI is alongside the USDC. With this Christensen raised concerns about the asset’s heavy reliance on USDC. Circle has made it clear that it will act in accordance with US law in the case of Tornado Cash. @bantg, Yearn.finance core developer, believes MakerDAO should convert all its USDC from its peg stability module into $3.5 billion in ETH. This would result in more than 50% of DAI being backed by Ether. However, the idea drew criticism from the community. MakerDAO has compared to the collapsed Terra (LUNA), which had aggressively been purchasing Bitcoin to back its stablecoin USDT.
Vitalik Buterin, Ethereum co-founder, believes it’s a very risky and terrible idea. He pointed out that if ETH drops a lot, the value of the collateral would go down but CDPs would not get liquidated. As such, the whole system would risk becoming a fractional reserve. Christensen then clarified that what he wanted to say was that yoloing all the stablecoin collateral into ETH would be a bad idea. He said slowly DCA’ing some collateral into ETH is an option that can be looked at depending on the severity of the blacklisting risk.