MakerDAO Urgently Approves USDC Reduction Proposal to Strengthen DAI Stability

Urgent proposal for DAI adjustment

On the 11th, MakerDAO, which manages the major DeFi (decentralized finance) Maker protocol, submitted an urgent proposal to reduce the impact of the centralized US dollar-linked stablecoin USDC, and it was passed on the same day.

The stablecoin “DAI” issued by the Maker Protocol is designed to be linked to the value of the US dollar and maintain 1 DAI ≒ 1 dollar. DAI has a market capitalization of $6.4 billion (approximately ¥856 billion), boasting the fourth largest market capitalization in the stablecoin field (at the time of writing).

DAI can be issued with cryptocurrencies locked in smart contracts as collateral, but half of the collateral assets are made up of USDCoin (USDC).

As such, it was affected by the collapse of US Silicon Valley Bank (SVB) last week and the bank run on USDC whose funds were tied up by SVB. Departing from the $1 reference value (dipeg), both the prevailing USDC and DAI prices temporarily fell to around $0.9.

At the beginning of the week, USDC and DAI both rallied back to near $1 when it was announced that the roughly 440 billion yen ($3.3 billion) of USDC reserves left in Silicon Valley banks could be recovered.

Based on these circumstances, MakerDAO passed an urgent proposal to strengthen the dollar peg. A key change is USDC’s Peg Stabilization Module (PSM), which lowered the daily cap on USDC-collateralized DAI from 950 million DAI to 250 million DAI.

In addition, USDC increased DAI swap fees from 0% to 1%. The aim is to reduce the risk of PSM holding too much USDC and encourage users to dispose of USDC in other ways. The new parameters will also be reflected on the 14th.

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Highly rated USDP

Similarly, Gemini Dollar (GUSD) issued by U.S. cryptocurrency exchange Gemini (Gemini Trust Company LLC) has a daily issuance cap on Maker PSM due to its large exposure to uninsured bank deposits. was reduced by 10 million from 50 million DAI. The decision was made in preparation for the risk of contagion.

Paxos (USDP) DAI modules issued by Paxos National Trust have raised the daily issuance limit from 450 million DAI to 1 billion. In addition, the USDP-to-DAI swap fee was raised from 0.2% to 0%, while the DAI-to-USDP fee was raised to 0.1%, thereby establishing a system for storing USDP.

Maker points out that USDP’s portfolio of reserve assets is designed to maintain high liquidity. It is less likely to be impaired than other stablecoins and may act as backstop liquidity to protect the liquidation of DAI contracts during market volatility.

According to Paxos’ report, the USDP’s reserves primarily consist of US Treasuries, reverse repo agreements collateralized by US Treasuries, insured bank deposits (placed through deposit intermediation networks to avoid FDIC restrictions), private Consists of insured bank deposits.

Paxos (Paxos National Trust), Inc. received conditional approval from the OCC on April 2021 for its National Banking License and is a regulatory entity providing custody services, stablecoin custody, payments, exchanges and other services. had been authorized.

The company has been involved in issuing two stablecoins: Pax Dollar (USDP) and Binance USD (BUSD). USDP issuance amount is 870 million dollars. BUSD has a circulation of $8.7 billion, but in February Paxos was ordered by the New York State Department of Financial Services (NYDFS) to stop issuing new BUSD.

connection:New York authorities order Paxos to stop issuing new stablecoin BUSD

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