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MakerDAO, the decentralized autonomous organization (DAO) behind the lending platform Maker, is set to keep Circle’s USD Coin ($USDC) as the primary reserve asset for $DAI stablecoin, following a community vote. Despite $USDC breaking its 1:1 peg earlier this month, almost 80% of MakerDAO members preferred to keep $DAI’s reserves in $USDC rather than diversifying into other stablecoins.
Majority of Votes Opt to Retain $USDC as Primary $DAI Reserve Asset
Members of MakerDAO voted to retain $USDC as the primary reserve asset for its $DAI stablecoin, despite Circle’s stablecoin breaking its peg last week and hitting an all-time low. In a “run-off vote,” where members choose reserve options in order of preference, around 79% of community members voted to keep $USDC, while the rest preferred diversifying the reserves.
The move comes in the wake of a tumultuous period in crypto and traditional finance (TradFi) markets after the US regulators shuttered Silicon Valley Bank (SVB), one of the key banking partners of Circle, which issues the $USDC. The abrupt closure of SVB caused a domino effect in the banking sector, with regulators shutting down the crypto-friendly Signature Bank just two days later.
Following the collapse, Circle said it had around $3.3 billion in funds trapped within SVB, resulting in a major run on $USDC stablecoin. The coin broke its 1:1 peg with the US dollar, falling to a record low of $0.87 at one point and disrupting other stablecoins, including MakerDAO’s $DAI. Circle attempted to calm investors, saying it would meet redemptions and address any potential shortfall using the company’s resources.
A Proposal to Diversify Into $GUSD and $USDP
The crisis triggered by SVB and $USDC’s depeg urged the MakerDAO community to reconsider $DAI’s reserves. The members were presented with two choices, including diversifying the stablecoin’s reserves using other candidates such as Gemini’s $GUSD and Paxos’ $USDP or sticking with $USDC.
“Among integrated stablecoins, $USDP and $GUSD seem to still have somewhat lower fundamental counterparty risk, with greater assurance of the stablecoins being bankruptcy remote and somewhat lower risk within their backing.”
– MakerDAO said in the proposal.
$DAI, the fourth biggest stablecoin by market cap, maintains its USD peg through collateralized debt positions. This system allows users to deposit collateral using cryptocurrencies such as Ether (ETH) and mint $DAI against those currencies. Besides digital assets, MakerDAO also backs $DAI’s value through real-world assets, including liabilities from traditional banks.
Editorial Update (24th March 2023, 12:18 PM EST): The article’s headline changed to “79% of Votes Opt to Keep Reserves in $USDC in Recent MakerDAO Proposal.”
Do you think the MakerDAO community should have chosen to diversify $DAI reserves? Let us know in the comments below.