Gsiteren, Circle’s stablecoin USDC lost its link to the dollar. As a result, the token lost about 10% of its value in just a few hours. Unfortunately, stablecoin issuer MakerDAO has large exposure to USDC, which is why the community voted on what is the best move forward.
MakerDAO has a lot of USDC
The striking thing about MakerDAO is that it is the issuer of the DAI stablecoin, but meanwhile it has the USDC stablecoin as collateral. This is what the Decentralized Autonomous Organization (DAO) chose after bitcoin (BTC) fell too hard to form good collateral.
Last year USDC made up about half of the collateral, now it is less than 40%. Yesterday’s dip will be a major part of this, although the USDC is now only worth 7-4% less than intended. The collateral now has a total value of 148% of DAI’s market value.
Last year, MakerDAO proposed to take USDC out of collateral altogether. This was because the stablecoin would be too centralized. USDC issuer Circle had to freeze the tokens in the wallet addresses of the crypto mixer Tornado Cash. Some people in the MakerDAO community didn’t like this, but the idea of doing away with the token altogether ultimately fell through. Vitalik Buterin, among others, was not in favor of such a risky move.
It now appears that the Members who suggested this were indeed somewhat right. However, the censorship and argued centralization is not the problem now, but ironically the stability of USDC.
The DAO going to vote about what it needs to do to minimize the impact of USDC’s troubles. There are several proposals. For example, the addition of Gemini Dollar (GUSD) to the reserves is being considered, because this coin has no exposure to Silvergate and Silicon Valley Bank (SVB).
Paxos’ stablecoin USDP is under consideration because it has mostly US government bonds and insured bank deposits. Furthermore, the plan is to completely eliminate exposure to the Decentralized Finance (DeFi) networks Compound and Aave. The initiators believe that these networks are not worth the risk at the moment.