Stablecoin DAI will no longer be pegged to USD?

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Rune Christensen, co-founder of MakerDAO, has said that stablecoin DAI may not continue to be pegged to USD through the removal of reliance on USDC. According to daistats, stablecoin DAI is now more than 50% backed by USDC.

Data on stablecoin DAI on daistats.

On August 11, Christensen revealed this on MakerDAO’s discord homepage. Specifically, the MakerDAO co-founder said the recent US Treasury Department sanctions against the “crypto mixing” platform Tornado Cash are reason to consider the plan.

According to Christensen, the sanctions are more severe than he initially considered. Following the Tornado Cash incident, Circle, the company behind USDC, froze the protocol’s stablecoin.

“We will discuss this on the call tonight, but I think we should seriously consider reducing our dependence on USDC,” Christensen said.

By removing reliance on USDC, stablecoin DAI can lose its peg in USD. This is because DAI’s current peg is maintained through a price stabilization module aka PSM. PSM allows DAI minting by accepting fixed rate collateral such as USDC and ETH. This rate requires more than 1 USD of collateral to mint 1 USD worth of DAI.

According to data from Makerburn, DAI is backed by more than 80% of stablecoins, with USDC having the majority. Therefore, if MakerDAO sells its USDC to buy into ETH, DAI could lose the peg of 1 USD due to PSM disruption. Christensen emphasized that this is a risk to the platform. The MakerDAO community has now come up with a plan to discuss this in an admin call yesterday.

MakerDAO is a smart contract platform built on top of the Ethereum blockchain network. It is used to back and stabilize the price of stablecoin DAI (01 DAI = 01 USD), with Collateralized Debt Positions (CDP) mechanism. The platform allows users to use their assets on Ethereum in exchange for DAI through smart contracts.

The information released from Christensen has received some criticism from KOLs in the crypto world. Among them is the “father” of Ethereum – Vitalik Buterin, he called it a “risky and terrible idea”. Vitalik suggested that a significant drop in the spot price of ETH could cause the collateral backing DAI to be undervalued.

In addition, Robert Leshner, founder of the DeFi protocol Compound Finance, also argued that this move could affect the stability of DAI.

According to Leshner, this could impact the DeFi space as a whole. He also emphasized that converting DAI into a volatile asset would destroy the value of the stablecoin.

Source: MarginATM .

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