MakerDAO Should “Seriously Consider” Ditching USDC

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  • The founder of MakerDAO has said that the project should “seriously consider” ditching USDC
  • Rune Christensen made the suggestion after Circle froze 75,000 tokens related to the Tornado Cash sanction
  • USDC makes up over 50% of the backing for the DAI stablecoin

The founder of the MakerDAO protocol has said that the decentralised autonomous organisation (DAO) in charge of it should “seriously consider” removing USDC from its collateral and preparing for the depeg of its DAI stablecoin from the United States dollar. Rune Christensen made the comments yesterday in the group’s Discord channel in the wake of the sanctions placed on Tornado Cash, saying that they were “unfortunately more serious than I first thought” and adding that the DAO should prepare to depeg its native stablecoin from USD as a response to Circle freezing sanctioned USD Coin (USDC) addresses in the wake of the Tornado Cash affair.

USDC Froze 75,000 Coins After Tornado Cash Sanctions

Shortly after Tornado Cash was sanctioned on Monday, USDC maker Circle announced that it was freezing over 75,000 USDC coins linked to the 44 Tornado Cash addresses sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). This led to heavy criticism about the lack of true decentralisation in the stablecoin space, concerns that have seemingly led to Christensen desiring to take action to protect MakerDAO.

DAI is currently the fourth largest USD-pegged stablecoin in the crypto space with a market cap of $7 billion, and has been praised for its resilience during market spikes. Around 50.1% of MakerDAO’s DAI is collateralized by USDC, and Christensen raised concerns with the DAO over the asset’s heavy reliance on the stablecoin to back it, given Circle’s willingness to work with the state in the case of extending sanctions applying to Tornado Cash to its own network.

Luna Mk. II?

Christensen appeared fairly set on the idea during the conversation, saying that such a move was “almost inevitable” and that preparations should be made. Clearly, removing USDC from the DAI basket would cause a huge depeg from its $1 valuation, but Christensen added that with “huge amounts of preparation” the impact could be managed, with other assets filling the void left by USDC.

Any such proposal would have to be voted on by the DAO, and if anyone in the DAO was looking for a wider opinion of such a move they didn’t need to look far, with comparisons to the failed Terra project coming thick and fast:

It’s clear that if MakerDAO does pursue this path it will need to think very carefully about what it replaces its stablecoin with to avoid a similar situation.