MakerDAO To Convert USDC Into ETH Ahead Of Ethereum Merge, Community Reacts

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Recently, Circle suspended USDC tokens belonging to 38 wallet addresses which were blacklisted by the US Treasury Department. These wallets were of Tornado Cash addresses.

Following this, MakerDAO has raised concern about the risks related to USDC. MakerDAO founder, Rune Chirstensen, has asked the community members, through the company’s discord channel, to be prepared for a depegging of the DAI stablecoin from the US Dollar. 

After the Office of Foreign Assets Control (OFAC) restricted residents from using Tornado Cash, Circle decided to freeze $75,000 worth of stablecoins. Following this, Rune claimed that these restrictions by OFAC are serious and MakerDAO should start preparing to depeg from USD.

Will The Entirety of USDC Be Converted Into ETH ?

It’s interesting to note that Rune plans to convert the afore-mentioned USDC into ETH. At the moment, USDC has collateral for more than 50% of MakerDAO’s DAI stablecoin. Hence, the founder appears very concerned with the dependency on single stablecoin and a centralized asset.

DAI’s market cap that stands at $7.5 billion, makes the currency one of the largest DeFi protocols by total value locked.

@bantg, a core engineer at Yearn.finance, tweeted that MakerDAO may propose converting all of its $3.5 billion USDC to ETH. As a result, more than 50% of DAI stablecoins will be secured by ETH, increasing from 7% currently.

The community is comparing this move to the Terra (LUNA) collapse and saying that this another “Terra in the making”. This is because the Terra network had made a similar mistake of backing all its USDT tokens with Bitcoin. After USDT underwent a huge depegging, Terra was forced to liquidate all its BTC reserves.

Other individuals have spoken out as well. 

Even Vitalik Buterin, Ethereum co-founder, is of the opinion that this would be a risky approach. Vitalik states that if Ethereum plunges in its value, even the collateral value will drop. Hence, the overall system would be affected, making it a fractional reserve.

In reply to Vitalik’s comment, Rune Chirstensen replied that they don’t have any plan to transfer all of USDC into ETH and only might transfer a few.