Analysis

MakerDAO’s Christensen Pushes “Endgame Plan” to Save DAI From Assault

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 towards real-world belongings to build up ETH, with the eventual aim of turning the stablecoin right into a free-floating asset.
  • The proposal has acquired help and pushback from members of the MakerDAO group.

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 ceaselessly, in line with one in all its co-creators, Rune Christensen.

The MakerDAO co-founder shared a brand new submit on the topic on the protocol’s governance boards Tuesday, outlining his concept for a brand new plan that might see the DAI stablecoin turn into a free-floating asset sooner or later. 

Titled “Endgame Plan timeline to free floating Dai,” the proposition focuses on lending DAI towards real-world belongings (RWAs) to bolster the protocol’s income. It suggests utilizing the earnings generated from issuing loans to accumulate extra ETH to make use of as collateral to again DAI. Beneath 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 think about letting DAI drift from its greenback peg to turn into a free-floating asset. 

The plan contains three completely 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 larger development for the MakerDAO protocol, however at the price of diminished resilience. 

Pigeon Stance, essentially the most lenient of the three methods, could be MakerDAO’s default stance. It prioritizes most development with limitless publicity to RWA loans. Eagle Stance finds a steadiness between development 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 to amass as a lot ETH collateral as doable to make DAI resilient to “authoritarian threats.” 

Such threats might embrace stress from authorities businesses to adjust to stringent laws or sanctions that power 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 risk 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 might probably swap to Eagle Stance with out leading to Dai going free floating,” Christensen’s submit learn. 

Nonetheless, if MakerDAO can’t hit the 75% decentralized collateral threshold, it’d 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 no less than 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 “speedy authoritarian risk.”

MakerDAO and Regulation

The Endgame Plan is a part of a wider dialogue on the MakerDAO boards addressing whether or not DAI could also be pressured 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 towards 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 it is going to be unable to adjust to. 

Christensen’s proposal has acquired some pushback. “I disagree that free floating DAI might be of a lot assist. Why would an authoritarian authorities disallow fiat pegged steady belongings, however allow free floating steady belongings (and even risky 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 extremely decentralized, however that didn’t cease it from being sanctioned. I don’t see how free floating Dai would forestall 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 actual threat for years,” stated person brianmcmichael. Finally, as person SebVentures, defined, a lot of the dialogue boils all the way down to a enterprise determination 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 are taking a doable larger regulatory threat to growl,” he stated.

Since many DeFi customers have come to count on DAI will maintain its peg to the greenback, shifting away from this paradigm, even when crucial, might come at a big price. With strong help each for and towards letting DAI drift from its peg, the controversy over how MakerDAO ought to put together itself for an unsure future will doubtless proceed for a while but. 

Disclosure: On the time of penning this piece, the creator owned ETH and several other different cryptocurrencies. 

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