13 days ago 2 min read

Maker DAO Files Urgent Plan to Address Vulnerability of 3.1B USDC


Maker DAO, the company that created the DAI stablecoin pegged to the US dollar, stated in a forum post that on March 11, the company had various collaterals "exposed to USDC tail risk" as a result of the unusual de-pegging of the USD Coin (USDC) stablecoin that had started on March 10. For the DAI stablecoin, Maker DAO presently has more than 3.1 billion USDC in collateral.

First, Maker suggests setting a debt ceiling of 0 DAI for the liquidity provider collaterals UNIV2USDCETH-A, UNIV2DAIUSDC-A, GUNIV3DAIUSDC1-A, and GUNIV3DAIUSDC2-A. In order to prevent "excessive dumping of USDC," Maker also wants to lower the daily minting limits of its USDC peg stability module from 950 million DAI to 250 million DAI and raise the fee from 0% to 1%. If the proposal is approved, Maker will also lower the daily minting limits of its GUSD module from 50 million DAI to 10 million DAI.

Maker also wants to completely cut off exposure to the decentralized financial protocols Curve and Aave. While Aave doesn't have these risks, Maker still claimed that its "overall risk-reward of depositing funds into the D3M are not favorable under current conditions" because Curve "uses a fixed $1 price for USDC," which "presents a risk of bad debt accrual and potentially bank runs with cascading market insolvency if the market price of USDC falls significantly below the current collateral factor."

Last but not least, Maker suggests raising the protocol's debt ceiling from 450 million DAI to 1 billion DAI for the USDP stablecoin produced by Paxos. The company wrote:

"Paxos has relatively stronger reserve assets versus other available centralized stablecoins, consisting primarily of U.S. treasury bills, reverse repurchase agreements collateralized by U.S. treasury bonds. They face relatively lower potential for impairment versus other available stablecoins"

Since its issuer, Circle, reported it had $3.3 billion in money collateralizing the stablecoin trapped on the now-defunct Silicon Valley Bank, USDC depegged from the US dollar on March 10. The price of USDC at the time of posting is $0.9025. The DAI stablecoin has likewise degged to $0.9235 in response to the announcement.

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