Rune Chirstensen, the founder of MakerDAO, has raised the issue of replacing the $3.5 billion USDC in the DAO’s treasury with Ethereum. Ethereum founder Vitalik Buterin commented on this topic. Here are the details…
MakerDAO impressed by Tornado Cash decision in the US
The comments came to the MakerDAO Discord channel on Thursday, August 11, after the U.S. Treasury approved the crypto mixer Tornado Cash earlier this week. Following the Tornado Cash decision, USDC stablecoin platform Circle began freezing all confirmed USDC addresses. OFAC banned citizens from using Tornado Cash, while placing 44 USDC addresses on its sanctions list. As a result, Circle had to freeze $75,000 worth of stablecoins. The founder used the following statements on MakerDAO’s Discord account:
The sanctions are unfortunately more serious than I first thought. I think we should seriously consider preparing to leave USDC. It is almost inevitable that this will happen, and it is only realistic to do so with a great deal of preparation.
Vitalik Buterin: Converting USDCs to ETH is a terrible idea
Interestingly, Rune also suggested converting this USDC to ETH. Currently, more than 50 percent of MakerDAO’s DAI stablecoin is collateralized by USDC. That’s why Rune expressed concern about this heavy dependence on a single stablecoin and a centralized asset. With a market cap of $7 billion, DAI is currently the fourth largest dollar-pegged stablecoin in the market.
Yearn.finance core developer @bantg tweeted that MakerDAO may consider moving all of its $3.5 billion USDC to ETH. Thus, more than 50 percent of DAI stablecoins will be backed by ETH, jumping from the current 7 percent. Shortly after Rune’s proposal, the MakerDAO community reacted by calling it another Terra under construction. Terra made the similar mistake of backing all UST tokens with Bitcoin. UST has left the US dollar, which should remain stable. As Cryptokoin.com also reported, Terra had to liquidate all its BTC reserves.
Even Ethereum co-founder Vitalik Buterin called it a risky proposition. However, Rune has clarified that they will not be transferring USDC to ETH entirely. But it still sticks to the idea of considering partial transfers. Warning about this, Buterin said:
This seems like a risky and terrible idea. If ETH drops too low, the collateral value drops too much. But CDPs are not liquidated, so the entire system risks becoming a fractional reserve.
Errr this seems like a risky and terrible idea. If ETH drops a lot, value of collateral would go way down but CDPs would not get liquidated, so the whole system would risk becoming a fractional reserve.
— vitalik.eth (@VitalikButerin) August 11, 2022
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