YEREVAN (CoinChapter.com) – On Aug 12, a rumor circulated the cryptoverse that decentralized autonomous organization Maker DAO plans to depeg its stablecoin DAI from the U.S. dollar. Allegedly, the DAO founder, Rune Christensen, has requested users to prepare for the upcoming changes.
The move sparked a massive fund outflow that shrunk the DAI market cap by $400 million since Aug 11 and stood at $7.2 billion on Aug 17.
Moreover, the strategy lead at Flashbots.net marked the outflow, adding that “emotion-based governance and DAO transparency are an explosive combo.”
Meanwhile, the stablecoin disturbance goes deeper than DAI vaults, affecting USDC first.
What happened to USDC; Is Stablecoin contagion underway?
In detail, the U.S. Office of Foreign Asset Control (OFAC) barred users and investors from using the Tornado Cash Protocol on Aug 8. The U.S. Treasury Department sanctioned the protocol, alleging that the privacy tool laundered more than $7 billion of crypto assets since 2019.
The agency placed 44 USDC addresses linked with the platform on its list of “specially designated nationals.” After the move, USDC issuer Circle froze stablecoins worth $75,000 linked to the 44 sanctioned addresses. Then, following the risky ‘contagion’ precedent, Christensen announced MakerDAO could sell its USDC holdings.
In detail, DAI is 32% backed by Circle’s USDC stablecoin, according to data from DAI tracker Daistats. The sum is equivalent to $3.5 billion, the single-largest collateral asset backing DAI.
It is obviously suicide to ‘yolo’ it all, but the risk/reward of partial uprooting may be acceptable. The market may finally start to reward decentralization to the point where these risks are acceptable because USDC is no longer the no-brainer it used to be.said the executive.
Why would MakerDAO depeg DAI from the dollar?
MakerDAO maintains DAI’s dollar peg by Peg Stability Module (PSM), which allows users to swap stablecoins such as USDC on a one-to-one basis in exchange for DAI.
As mentioned, the third of the collateral backing DAI comprises USDC coins. Thus, selling the latter would undermine the peg’s stability. However, Christensen commented that the risk from maintaining the peg itself might outweigh the depeg threat.
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 the CEO.
Ethereum chief Vitalik Buterin called the depeg plan a “terrible idea.”