On March 11, MakerDAO issued an “urgent executive proposal” to mitigate any risks to the protocol associated with its USDC tail risk exposure. Make DAO has over 3.1 billion USDC in collateral backing its DAI stablecoin. This urgent executive proposal comes on the heels of an extraordinary de-pegging of the USD Coin (USDC) stablecoin, which began on March 10. By taking these proactive steps, Maker DAO hopes to minimize any potential negative impacts from this unprecedented situation.
Maker is proposing to reduce the debt ceiling of UNIV2USDCETH-A, UNIV2DAIUSDC-A, GUNIV3DAIUSDC1-A, and GUNIV3DAIUSDC2-A liquidity provider collaterals to 0 DAI. Additionally, Maker intends to decrease the daily minting limit of its USDC peg stability module from 950 million DAI to 250 million DAI and increase the fee from 0% to 1% to minimize “excessive dumping of USDC.” Furthermore, Maker would decrease the daily minting limit of its GUSD stablecoin module from 50 million DAI to 10 million DAI, should the proposal be approved.
Maker has decided to eliminate exposure to decentralized finance protocols Curve and Aave. According to Maker, the risk of bad debt accrual and potential bank runs with cascading market insolvency posed by Curve due to its fixed $1 price for USDC makes it particularly risky. Additionally, Maker believes that although Aave does not pose such risks, the overall risk-reward of depositing funds into the D3M is unfavorable under current conditions.
Maker proposed to increase the protocol’s debt ceiling from 450 million DAI to 1 billion USDP stablecoin issued by Paxos. They argued that this is a relatively safer option since Paxos has stronger reserve assets, primarily consisting of U.S. treasury bills and reverse repurchase agreements collateralized by U.S. treasury bonds, with lower potential for impairment than other available stablecoins.
On March 10, USDC depegged from the U.S. dollar following Circle’s announcement that $3.3 billion in funds had been collateralized by now-defunct Silicon Valley Bank. Currently, USDC is trading for $0.9025, and DAI has followed suit with a value of $0.9235.
