Following Circle’s freeze of blacklisted Tornado Cash addresses, MakerDAO is re-assessing the dangers related to its USDC collateral.
On August 8, issuers of USDC stablecoin Circle froze USDC tokens belonging to 38 wallet addresses blacklisted by the U.S. Treasury Department. One of the wallets was recognized as a DAI Tornado pool. As a consequence, there have been issues from the MakerDAO group about their exposure to USDC and the chance of being hunted by regulators.
You have a while to do it, however it is advisable to get began.
— Erik Voorhees (@ErikVoorhees) August 8, 2022
In response, the group has been actively engaged in deep discussions by way of the Discord channel on the best way ahead.
DAI’s exposure to USDC and sanction threat
DAI’s market capitalization of $7.5 billion makes it the biggest DeFi protocol by complete worth locked. It is at present collateralized by 33.9% USDC, 23.2% ETH, and seven.6% WBTC, amongst different property. With $3.56 billion USDC locked within the Maker protocol, USDC represents the biggest supply of collateral.
The sustainability of DAI is below query as it’s closely backed by collateral that regulators can censor. MakerDAO delegate Chris Blec believes it might result in a sanction on DAI
“Good luck not getting sanctioned when DAI is already sitting in sanctioned smart contracts that can’t be paused,” Blec added.
Another subject brewing locally issues Maker’s Peg Stability Module (PSM). The PSM permits customers to swap a given collateral kind instantly for DAI at a set price. At the second, Maker’s USDC PSM contract holds 3.56 billion USDC.
Since some DAI customers interacted with Tornado Cash by the USDC PSM, the contract could possibly be implicated within the case of a probe. If a sanction has to blacklist the PSM, the DeFi market as a complete could possibly be vulnerable to contagion.
An emergency Shutdown is probably going
According to MakerDAO founder Rune Christensen, whereas the protocol might not resist sanctions within the quick run, it’s going to take instant actions to organize against potential assaults. Rune stated:
“The best option is to count on not getting sanctioned now, and then work on the fundamentals we need to have in place to be able to actually resist a real physical attack. We should just accept that if they want to shut us down, the outcome is [an] emergency shutdown.”