Rune Christensen, the founder of MakerDAO, has recommended that the community members of the DAO (decentralized autonomous organization) should look into de-pegging the DAI stablecoin from the US Dollar.
Rune made this comment on Thursday on the MakerDAO discord channel after the United States government declared sanctions on Tornado Cash, a crypto mixer, saying the sanction is looking more serious than he has imagined and as a result, the safest thing for the DAO to do to mitigate risks is to initiate the de-pegging of DAI – its native stablecoin – from the US Dollar. Also, he said that concerning the recent freezing carried out by Circle on the sanctioned USD Coin addresses.
Earlier on Monday, the United States OFAC (Office of the Foreign Assets Control) officially restricted all residents from making use of the Tornado Cash protocol, and as a result, about 44 USDC addresses that have used the crypto mixer were placed on the Specially Designed Nationals list.
After the announcement, Circle, the company issuing USD Coin (USDC), has frozen the USDC linked to the 44 addresses which are sanctioned, and in total, about $75,000 worth of USDC was frozen.
How does it Affect MakerDAO?
USDC is an asset backing most stablecoins, including MakerDAO’s DAI. According to Dai stats, about 50.1% of the stablecoin is collateralized by USD Coin. Rune Christensen, the DAO founder, expressed his concerns about the DAI’s extreme reliance on the USD Coin, which is a centralized asset with Circle operating following the laws, policies, and regulations of the United States government and as expressed in the case of Tornado Cash.
MakerDAO’s DAI is currently the fourth asset on the list of stablecoins pegged to the USD with the market capitalization sitting around $7 billion. Based on the market cap, the asset is the fifteenth largest asset in the entire crypto market.
Ditching USDC Backing
After the de-pegging call made by Rune, the core developer of Yearn.Finance, Bantg, has suggested that the DAO would be considering moving all the USDC worth $3.5 billion from its peg stability module to Ethereum. This would mean the DAI stablecoin will have over 50% of its value backed by Ethereum, which is a massive increase from the initial 7.3%.
The idea proposed by Bantg has raised criticism from the members of the DAO. They compared the DAI project to the Terra UST project, which invested aggressively in Bitcoin to back it then TerraUSD (now TerraUSD Classic) before the project eventually crashed.