MakerDAO plans against sanctions from USDC exposure

Following Circle’s freeze of blacklisted Tornado Cash addresses, MakerDAO is re-assessing the risks associated with its USDC collateral.

On August 8, issuers of USDC stablecoin Circle froze USDC tokens belonging to 38 wallet addresses blacklisted by the U.S. Treasury Department. One of the wallets was identified arsenic a DAI Tornado pool. As a result, determination person been concerns from the MakerDAO assemblage astir their vulnerability to USDC and the hazard of being hunted by regulators.

Dear @MakerDAO $DAI community… you should commencement unwinding your USDC collateral immediately, converting it into stables that are much censorship resistant.

You person immoderate clip to bash it, but you request to get started.

— Erik Voorhees (@ErikVoorhees) August 8, 2022

In response, the assemblage has been actively engaged successful heavy discussions via the Discord transmission connected the mode forward.

DAI’s vulnerability to USDC and authorisation risk

DAI’s marketplace capitalization of $7.5 cardinal makes it the largest DeFi protocol by full worth locked.  It is presently collateralized by  33.9% USDC, 23.2% ETH, and 7.6% WBTC, among different assets. With $3.56 billion USDC locked successful the Maker protocol, USDC represents the largest root of collateral. 

The sustainability of DAI is nether question arsenic it is heavy backed by collateral that regulators tin censor. MakerDAO delegate Chris Blec believes it could pb to a authorisation connected DAI

“Good luck not getting sanctioned erstwhile DAI is already sitting successful sanctioned astute contracts that can’t beryllium paused,” Blec added.

Another contented brewing successful the assemblage concerns Maker’s Peg Stability Module (PSM). The PSM allows users to swap a fixed collateral benignant straight for DAI astatine a fixed rate. At the moment, Maker’s USDC PSM declaration holds 3.56 cardinal USDC.

Since immoderate DAI users interacted with Tornado Cash done the USDC PSM, the declaration could beryllium implicated successful the lawsuit of a probe. If a authorisation has to blacklist the PSM, the DeFi market arsenic a full could beryllium astatine hazard of contagion.

An exigency Shutdown is likely

According to MakerDAO laminitis Rune Christensen, portion the protocol whitethorn not defy sanctions successful the abbreviated run, it volition instrumentality contiguous actions to hole against imaginable attacks. Rune said:

“The champion enactment is to number connected not getting sanctioned now, and past enactment connected the fundamentals we request to person successful spot to beryllium capable to really defy a existent carnal attack. We should conscionable judge that if they privation to unopen america down, the result is [an] exigency shutdown.”

The station MakerDAO plans against sanctions from USDC exposure appeared archetypal connected CryptoSlate.