Maker’s co-founder has stated that he intends to exchange $3.5 billion worth of USDC for ETH. The sale of such a sizable quantity of USDC for ETH by MakerDAO co-founder Rune Christensen raises the possibility of yet another stablecoin disaster. It puts the DAI token from MakerDAO, backed 32% by the USDC stablecoin, at risk of losing its dollar peg. USDC is the single-largest collateral asset backing DAI. If such a sizable portion of that collateral is taken out of the MakerDAO treasury, it might cause the DAI token to become unstable and unpegged.
Christensen prefers to hold $3.5 billion in ETH over USDC, so he wants to move forward with the plan.
Christensen’s choice was motivated by the U.S. Treasury Department’s decision to forbid Tornado Cash, a cryptocurrency mixing tool, because of its associations with money-laundering activities. The consortium behind USDC (Centre) blocked 38 wallet addresses and froze USDC worth $75,000 to comply with the sanction and stop interactions with the mixing tool. The decentralization of the DAI stablecoin was highlighted by the Block listing of Tornado Cash wallets, and many concerns were raised regarding DAI’s reliance on USDC.
Users must enter collateral assets from a variety of cryptocurrencies into the MakerDAO protocol as a result of DAI’s over-collateralization in order to hold the token. To receive DAI, users can exchange stablecoins like USDC one for one. Therefore, a large-scale sale of USDC would interfere with the stability peg mechanism, and DAI would ultimately depeg.
Christensen voiced his worries about the recently implemented sanction in the MakerDAO Discord channel, claiming:
“I have been doing more research into the consequences of the Tornado Cash sanction and, unfortunately, it is a lot more serious than I first thought…The market may finally start to reward decentralization to the point where these risks are acceptable because USDC is no longer the no-brainer it used to be…I think we should seriously consider preparing to depeg from USD. It is almost inevitable that it will happen and it is only realistic to do with huge amounts of preparation. “
His remarks make it clear that he believes that, given the potential rewards, the risk of depegging is worthwhile. Regrettably, the MKR token’s price fell by 4% due to this.
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