79% of Votes Opt to Keep Reserves in USDC in Recent MakerDAO Proposal
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.
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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.