MakerDAO founder proposes converting $3.5B USDC reserve to Ethereum MakerDAO founder proposes converting $3.5B USDC reserve to Ethereum
Buterin has called MakerDAOโs idea of converting its reserve into Ethereum a โrisky and terrible idea.โ
2 min read
Updated: Jun. 23, 2023 at 10:43 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
MakerDAO (MKR) founder Rune Christensen has asked DAO members to consider converting its $3.5 billion USDC reserves to Ethereum (ETH) because of the extent of the Tornado Cash sanctions.
MakerDAO is considering a $3.5 billion ETH market buy, converting all USDC from the peg stability module into ETH.
— banteg (@bantg) August 11, 2022
Christensen made this suggestion via theย DAO Discord group stating that additional research has shown him that the consequences of Tornado Cash sanction are more severe than initially thought.
rune: we should seriously consider depegging from usd pic.twitter.com/HBMrPH7LrW
— banteg (@bantg) August 11, 2022
“I think we should seriously consider preparing to depeg from USD. It is almost inevitable it will happen and it is only realistic to do with huge amounts of preparation.”
Meanwhile, Christensen later clarified that he intended a “partial Yolo” in which Maker buys ETH with some of its USDC collateral. He believes it is an option worth considering following the Tornado Cash embargo.
Yes, I think slowly DCAโing some collateral into ETH is an option that can be considered depending on the severity of the blacklisting risk, which I personally think is much higher after the TC blacklistโฆ it would exchange blacklist risk for depeg and haircut risk
— Rune (@RuneKek) August 11, 2022
Circle blacklist function fears
With about 40% of DAI reserve held in USDC, the protocol fears a situation where it could be affected by Circle’s sanctions.
In light of the recent blacklistings of USDC addresses there is no surprise that they're considering de-risking and decentralizing by dumping their USDC holdings
Their potential approach of YOLO buying $3.5B worth of ETH seems crazy though
— Lucky (@Lucky_2147) August 11, 2022
However, converting $3.5 billion worth of its reserves into Ethereum also presents a risk of DAI de-pegging from USD โ given the volatile nature of ETH and other cryptocurrencies.
Circle had blocked the 44 wallets sanctioned by the US Office of Foreign Assets Control.
The stablecoin issuer conceded that its action was against the ethos of an open internet. However, it had to make a move to comply with existing laws.
Crypto community compares the idea to Terra
Crypto community members are already comparing MakerDAO’s idea to Terra ecosystem Bitcoin (BTC) purchase.
if true, this is Do Kwon level
you don't announce a buy like this and then do it all at once
— DCinvestor.eth โโจ-โจ (@iamDCinvestor) August 11, 2022
Remember Terra / ust and btc collateral ๐
— JamieDโs BitcoinFraud (@ElPako81465943) August 11, 2022
— Dylan LeClair ๐ (@DylanLeClair_) August 11, 2022
Why does this immediately remind of when and where (price action wise) of LFG's BTC purchase?
— Tasal (@0xTasal) August 11, 2022
Buterin rejects the $3.5B ETH purchase idea
Ethereum co-founder Vitalik Buterin does not think Maker’s idea is good. According to Buterin, it “seems like a risky and terrible idea” because it places the whole system at risk, especially if the value of ETH drops.
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
Instead, Vitalik suggested a diversification of stables as collateral. According to him, non-ETH collateral should not exceed 20% of the total or possibly limit the collateral to a maximum of 20% in each jurisdiction.
Personally I think no single type of non-ETH collateral should be allowed to exceed 20% of the total. Maybe even limit to max 20% in any single jurisdiction.
And if you can't do that, put a limit on DAI's growth (eg. by adding a negative interest rate) until you can.
— vitalik.eth (@VitalikButerin) August 11, 2022
Buterin continued that the reserve diversification could be “19% USDC, 19% some euro thing, 19% something out of Singapore?”
19% usdc, 19% some euro thing, 19% something out of Singapore?
— vitalik.eth (@VitalikButerin) August 11, 2022
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Oluwapelumi Adejumo
Oluwapelumi values Bitcoin's potential. He imparts insights on a range of topics like DeFi, hacks, mining and culture, underlining transformative power.
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Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).
Maker
$1,559.21
Maker is a decentralized autonomous organization on the Ethereum blockchain seeking to minimize the price volatility of its own stable token โ the Dai โ against the IMFโs international currency basket SDR.
USD Coin
$0.99984
USD Coin (USDC) is a stablecoin fully backed by the US dollar and developed by the CENTRE consortium.
Dai
$1.00049
Dai (DAI) is a cryptocurrency token and operates on the Ethereum platform.
Circle
Circle Internet Financial Ltd is a global internet finance company, built on blockchain technology and powered by crypto assets.
Vitalik Buterin stands as the pioneering force behind Ethereum, a transformative community-driven platform that fuels the cryptocurrency ether (ETH) and underpins a myriad of decentralized applications.
Rune Christensen is Chief Executive Officer and Cofounder of MakerDAO.