MakerDAO, the organization behind the decentralized stablecoin DAI, is considering the possibility of trading all of its reserves in USD Coin (USDC), which today amounts to around $3.5 billion, or 49% of reserves.
The proposal comes shortly after USDC issuer Circle froze more than 75,000 USDC in funds tied to the 44 addresses on Tornado Cash, the US-sanctioned cryptocurrency mixer.
However, experts warn that changing DAI reserves could cause the stablecoin to lose its 1:1 parity with the US dollar.
According to MakerDAO founder Rune Christensen, Circle’s action is a kind of censorship. And that has alarmed the organization to seek solutions that don’t depend on Circle’s decisions. One option would be to sell all the USDC that DAI holds as collateral.
Christensen sees this option as “unavoidable”, although there is a chance that it will directly impact the price of DAI. According to him, this is a risk that the community must take in order not to depend on company shares.
However, for the proposal to be put into practice, it is necessary for the Decentralized Autonomous Organization (DAO) to vote and approve. That is, the holders of the MKR token will decide whether or not Maker will replace their USDC reserves.
However, as Mariano Conti, who worked with MakerDAO, noted, the majority of MKR is owned by the platform’s founders. That is, the protocol’s governance is centralized, which can result in a decision that the community doesn’t like.
“They decentralized the platform, but they centralized the governance”, he commented.
While the initiative has legitimate motivations, it could cause the price of the DAI stablecoin to collapse and lose its parity with the dollar.
ETH for USDC? Buterin says it’s a bad idea
The developer known as @banteg said on his Twitter account that MakerDAO would be considering converting all of its USDC into Ether (ETH), in what he says would be a purchase of around $3.5 billion.
in response to tweetVitalik Buterin, co-founder of ETH, said that this is a “risky and terrible idea”:
“That strikes me as a risky and terrible idea. If ETH drops too much, the value of collateral would drop, but CDPs would not be liquidated. Then the whole system would run the risk of becoming a fractional reserve,” he said.
Then Buterin stated that he thinks that in any type of collateral, the amount of ETH should exceed 20% of the total.
“Maybe up to a maximum of 20% in any case”, said.
It is worth mentioning that, today, of the total DAI guarantees, only 7.4% is in ETH.