MakerDAO Co-Founder Proposes Dumping $3.5 Billion USDC Reserves for ETH

Rune Christensen, MakerDAO founder, recently suggested that USDC be removed from the DAI stablecoin’s peg stability module. He suggested that USDC from the DAI stablecoin, which is worth $3.5 billion could be used instead to buy ETH.

Despite the potential price increase for ETH, Vitalik Buterin called it a “terrible idea.”

Reduce Exposure to USDC

Rune voiced concern over US Treasury Department’s recent sanctions against Tornado Cash, a privacy protocol. He said, “It’s a lot worse than I thought.”

He said, “I think it’s worth seriously considering preparing for a depeg from USD”, adding that such a transition was “almost inevitable” but should be prepared well.

This could be done by “uprooting” or “yolo USDC to ETH approach”.

Circle CEO Jeremy Allaire stated that Circle, the issuer of USDC, was forced to comply with sanctions against Tornado Cash by the Treasury Department due to Bank Secrecy act requirements. It used its authority and froze USDC at all sanctioned addresses and related entities.

Since then, the crypto community has begun to discuss risks associated with centrally-issued stablecoins. These coins are vulnerable to state enforcement, censorship and capture. MakerDAO’s DAI, on the other hand, is a “decentralized stablecoin” that is backed by a few digital assets.

The USDC makes up about half of the reserves, while the other half is made up of ETH and other less centralized cryptocurrency. It is possible to convert USDC reserves into ETH, which could reduce the risk that MakerDAO’s assets will be frozen by Circle and boost ETH’s value.

Buterin, the Ethereum co-founder, isn’t on board.

He tweeted that it seemed like a dangerous and terrible idea. “If ETH falls a lot, the value of collateral will go way down, but CDPs wouldn’t get liquidated, so this whole system could risk becoming a fractional reserve.”

Decentralizing Stablecoins

DAI could be used to mitigate centralization risks. It would diversify reserves so that no asset makes up 20% of the total. To limit its growth, he suggested that DAI be subject to a “negative rate of interest”.

MakerDAO’s Discord recognized that conversion could increase DAI’s dollar-peg risk, but Rune still believes that a partial uprooting could be worth it.

He said that he believes the market might finally reward decentralization, as USDC is no longer a no-brainer.

Since TerraUSD (UST), the former third-largest stablecoin, collapsed in May, fears have been growing about decentralized and “algorithmic stablecoins.” Indirectly, the volatile LUNA was the backer of the token. However, the token collapsed when the prices of both assets fell.

The LUNA Foundation Guard, which bought billions in Bitcoin for its stablecoin reserves, conducted a similar plan months before TerraUSD’s collapse. It was forced to sell the Bitcoin it had bought in a failed effort to preserve UST’s fragile peg.

CryptoPotato’s first article, MakerDAO co-founder proposes dump of $3.5 billion USDC reserves for Ethereum appeared first on CryptoPotato.

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Marla Brooks – Financial Analysis My name is Marla Brooks, and I am the mainstream behind the””  for the powerful and most delicate insights into the latest activities in the financial analysis category. I started my journey as an independent financial consultant. I had approximately nine years of experience in this field. I am free soul so; my passion for exploring the world has taken me to the nations across the globe and given me the chance to report for a portion of the best news associations. Currently, I am a full-time editor as experienced in finance and started to use my abilities.

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