The co-founder of Maker has expressed that he plans to sell $3.5 billion worth of USDC for ETH.
DAI Could Depeg
MakerDAO co-founder Rune Christensen’s decision to sell such a vast amount of USDC for ETH could result in another stablecoin catastrophe. It puts MakerDAO’s DAI token at risk of losing its dollar peg since it is backed 32% by the USDC stablecoin. In fact, USDC is the single-largest collateral asset backing DAI. If such a significant portion of that collateral is removed from the MakerDAO treasury, it could destabilize and depeg the DAI token.
However, Christensen wants to go ahead with the plan as he prefers holding $3.5 billion worth of ETH instead of USDC.
Abiding By Tornado Cash Sanction
The reason behind Christensen’s decision stems from banning the crypto mixing tool Tornado Cash by the U.S. Treasury Department due to its connections with money laundering operations. To abide by the sanction and prevent interactions with the mixing tool, Centre (the consortium behind USDC) blocklisted 38 wallet addresses and froze $75,000 worth of USDC. The blocklisting of Tornado Cash wallets brought the decentralization of the DAI stablecoin into focus and raised many questions about the dependence of DAI on USDC.
DAI’s overcollateralization requires users to provide collateral assets from a range of cryptocurrencies into the MakerDAO protocol in order to hold the token. Users can swap stablecoins like USDC on a one-to-one basis to receive DAI. Therefore a bulk selling of USDC would tamper with the stability peg mechanism, and DAI would ultimately depeg.
Christensen: “Worth The Risk”
In the MakerDAO Discord channel, Christensen expressed his concerns about the newly imposed sanction, stating,
“I have been doing more research into the consequences of the Tornado Cash sanction and, unfortunately, it is a lot more serious than I first thought…The market may finally start to reward decentralization to the point where these risks are acceptable because USDC is no longer the no-brainer it used to be…I think we should seriously consider preparing to depeg from USD. It is almost inevitable that it will happen and it is only realistic to do with huge amounts of preparation.”
From his comments, it is clear that he feels that the risk of depegging is worth taking in the context of the reward possibilities. Unfortunately, this also resulted in a 4% price drop of the MKR token.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.