Rune Christensen, co-founder of MakerDAO, has stated that the DAI stablecoin could exit its USD peg by eliminating all of its USD Coin (USDC) exposure. The DAI stablecoin is currently backed 32% by USDC, according to daistats.
Christensen made the remarks on the MakerDAO Discord channel on Thursday. The MakerDAO co-founder said the recent US Treasury sanctions against crypto mixing service Tornado Cash was the reason for considering the pivot. According to Christensen, the sanctions are more serious than he originally considered. Centre, the consortium behind USDC, froze USDC funds in Tornado Cash wallets following the sanctions.
"Will be discussing it at tonight's call but I think we should seriously consider preparing to depeg from USD ... it is almost inevitable that it will happen and it is only realistic to do with huge amounts of preparation," said Christensen.
By abandoning its USDC exposure, the DAI stablecoin could lose its US dollar peg. This is because DAI’s current peg is maintained via something called a “price stability module” or PSM. The PSM enables the minting of DAI for acceptable collateral such as USDC and ether (ETH) at a fixed rate. This fixed rate requires a little more than $1 of the collateral to mint $1 worth of DAI.
According to data from Makerburn, DAI is over 80% backed by stablecoins of which USDC is in the majority. As such, if MakerDAO sells its USDC for something like ETH, DAI could lose its $1 peg due to a disruption of the PSM. Christensen says this is an acceptable risk and the MakerDAO community is set to discuss the matter in a governance call today.
Christensen’s comments have drawn criticism from several notable crypto personalities. Ethereum co-creator Vitalik Buterin called it a “risky and terrible idea,” adding that a significant decline in the spot price of ETH could see the collateral backing for DAI becoming undervalued.
Robert Leshner, the founder of DeFi protocol Compound Finance, argued that the move could affect DAI’s stability. According to Leshner, this could have implications for the DeFi space as a whole. “Converting DAI into a price-elastic asset will ruin it, full stop,” Leshner added.
This article was updated to reflect that DAI is backed 32% by USDC and not 60% as originally published.
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