Key Takeaways
- Following the Treasury Division’s transfer to sanction Twister Money earlier this month, MakerDAO co-founder Rune Christensen has proposed an “Endgame Plan” to avoid wasting DAI from regulatory seize.
- The plan would see MakerDAO lend out DAI in opposition to real-world belongings to build up ETH, with the eventual objective of turning the stablecoin right into a free-floating asset.
- The proposal has obtained assist and pushback from members of the MakerDAO group.
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The proposal addresses Rune Christensen’s earlier issues about authoritarian dangers to MakerDAO protocol and the quantity of USDC backing DAI.
The “Endgame Plan”
DAI can’t stay a stablecoin perpetually, in response to considered one of its co-creators, Rune Christensen.
The MakerDAO co-founder shared a new post on the topic on the protocol’s governance boards Tuesday, outlining his thought for a brand new plan that might see the DAI stablecoin change into a free-floating asset sooner or later.
Titled “Endgame Plan timeline to free floating Dai,” the proposition focuses on lending DAI in opposition to real-world belongings (RWAs) to bolster the protocol’s income. It suggests utilizing the earnings generated from issuing loans to amass extra ETH to make use of as collateral to again DAI. Underneath Christensen’s plan, the diploma to which MakerDAO is profitable in accumulating ETH over the subsequent three years will decide whether or not or not it ought to contemplate letting DAI drift from its greenback peg to change into a free-floating asset.
The plan contains three totally different collateral methods—dubbed Pigeon Stance, Eagle Stance, and Phoenix Stance—that lie on a spectrum between excessive RWA publicity and none. As Christensen places it, extra RWA publicity allows greater progress for the MakerDAO protocol, however at the price of decreased resilience.
Pigeon Stance, essentially the most lenient of the three methods, can be MakerDAO’s default stance. It prioritizes most progress with limitless publicity to RWA loans. Eagle Stance finds a stability between progress and resilience by limiting Maker’s RWA publicity to 25% of all loans. Phoenix Stance is essentially the most conservative, stipulating that the protocol takes on no sizable publicity to RWAs.
Christensen’s plan begins by placing MakerDAO into Pigeon Stance for 3 years. Right here, the protocol would try and amass as a lot ETH collateral as potential to make DAI resilient to “authoritarian threats.”
Such threats might embody strain from authorities companies to adjust to stringent rules or sanctions that pressure centralized stablecoin issuers like Circle to freeze USDC funds held in MakerDAO’s vaults for non-compliance. Christensen had beforehand commented on how MakerDAO’s reliance on USDC might pose a critical menace after the stablecoin issuer froze funds deposited into privateness protocol Twister Money earlier this month. “If the protocol reaches 75% decentralized collateral organically from the buildup of ETH throughout Pigeon Stance, then it may well change to Eagle Stance with out leading to Dai going free floating,” Christensen’s put up learn.
Nonetheless, if MakerDAO can’t hit the 75% decentralized collateral threshold, it would make sense to let DAI drift from its one-to-one peg with the greenback. No matter what occurs, Christensen’s plan specifies that DAI will stay pegged to the greenback for at the least the subsequent three years. After then, the timeline for turning DAI right into a free-floating asset is also delayed if there is no such thing as a “instant authoritarian menace.”
MakerDAO and Regulation
The Endgame Plan is a part of a wider discussion on the MakerDAO boards addressing whether or not DAI could also be compelled to surrender its greenback peg to prioritize decentralization. Christensen has argued that monetary regulation trending towards a paradigm of “both you’re with us otherwise you’re in opposition to us,” mixed with DAI’s inherent censorship resistance means the stablecoin will inevitably want to interrupt its peg with the greenback to keep away from regulatory oversight that will probably be unable to adjust to.
Christensen’s proposal has obtained some pushback. “I disagree that free floating DAI might be of a lot assist. Why would an authoritarian authorities disallow fiat pegged secure belongings, however allow free floating secure belongings (and even unstable base crypto belongings for that matter) after they nonetheless undermine authorities management over the financial system?” requested MakerDAO member monet-supply. “Twister Money had extraordinarily little publicity to RWA and is very decentralized, however that didn’t cease it from being sanctioned. I don’t see how free floating Dai would stop Maker from experiencing the identical destiny,” CodeKnight wrote.
Nonetheless, different MakerDAO members agreed extra with Christensen’s outlook. “It’s so good to lastly see this acknowledged by weighty MKR voting energy. I’ve been within the minority warning about this precise threat for years,” mentioned consumer brianmcmichael. In the end, as consumer SebVentures, defined, a lot of the dialogue boils all the way down to a enterprise resolution that MKR holders have to make. “On one facet, you lower the worth of the product (DAI) to extend the odd[sic] of survival. On the opposite facet, you’re taking a potential greater regulatory threat to growl,” he mentioned.
Since many DeFi customers have come to anticipate DAI will maintain its peg to the greenback, transferring away from this paradigm, even when crucial, might come at a major price. With stable assist each for and in opposition to letting DAI drift from its peg, the talk over how MakerDAO ought to put together itself for an unsure future will probably proceed for a while but.
Disclosure: On the time of penning this piece, the creator owned ETH and a number of other different cryptocurrencies.
