The crypto risk assessment firm Gauntlet proposed to the Aave community that it should deprecate the decentralized stablecoin Mai (MIMATIC) on the lending protocol.
This is due to the ongoing depeg involving the stablecoin. The price of Mai experienced a significant decline in the past couple of weeks, dropping from $0.88 at the beginning of October to 0.72 earlier today. It's currently trading at $0.78, according to CoinGecko data.
In response, Gauntlet recommended to Aave’s governance unit that they initiate the deprecation process for Mai across EVM chains by reducing loan terms and increasing borrowing rates.
The proposal stated, “Given MAI price drop to ~$0.72 over the past 24 hours and its inability to regain peg for the past few months, Gauntlet recommends beginning the deprecation of MAI. We aim to do so by reducing LT and increasing borrow rates to incentivize repayment.”
The Mai stablecoin, issued via DeFi protocol Mai.Finance and governed by QiDAO, has encountered challenges in re-establishing its intended dollar peg since July when it first fell below $0.98.
The project has not provided clarity on why the stablecoin has been trading below the dollar mark for months. The fully diluted market cap of Mai is worth $238 million, with the majority of the supply is issued on the Polygon blockchain.
Risks associated with decentralized stablecoins
Coinciding with the Mai stablecoin issue, Real USD (USDR), which purports to be backed by tokenized real estate assets and is issued by TangibleDAO, also underwent a significant depeg event earlier this week. This led to a 50% drop in its price, and the stablecoin is still struggling to recover, currently trading at $0.53.
Unlike centralized stablecoins like USDC and USD Tether (USDT), which are backed by real-world cash or cash equivalents, decentralized stablecoins are collateralized by cryptocurrencies and often operate based on algorithmic mechanisms.
Consequently, they are more susceptible to losing their peg because of fluctuations in market conditions or underlying assets. Past instances of this include depegs affecting USDX on the Kava blockchain and USDN on Waves.
A QiDAO spokesperson did not immediately respond to a request for comment.
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