Tempus
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Tempus

Tempus Takes #11

Can a free floating DAI keep Maker afloat?

MakerDAO co-founder Rune Christensen recently laid down a proposal highlighting the need to free float DAI to ensure DAI’s continued existence.

This comes amidst the continued Tornado Cash sanctions that were announced on 8 August 2022, which also resulted in many companies like Circle blacklisting all USDC in the Tornado contracts and protocols like dYdX blocking wallets that are associated with Tornado Cash.

MakerDAO’s stablecoin DAI started out as a crypto-backed stablecoin that is decentralized, but this is not the case anymore. Recent developments around USDC have changed DAI into a centralized stablecoin.

Source: https://bit.ly/3wTuGte

MakerDAO is the largest single holder of USDC and more than 50% of DAI is also backed by USDC. Because of the ongoing crackdown on crypto due to the LUNA collapse, there is a possibility that the regulators might attack MakerDAO for one purpose or another. We have to find a better use of the USDC lying in the treasury.

Source: Dai Stats

Any regulatory crackdown on MakerDAO would significantly impact DAI and its peg to the dollar!

The Endgame Plan

Reacting to these recent developments, Rune Christensen has proposed an “Endgame Plan” to save DAI from regulatory capture.

This plan would require MakerDAO to lend its DAI for RWA’s (real-world assets) and earn revenue while accumulating as much ETH as possible. The 1:1 peg of DAI with USD will remain indefinitely if the protocol is able to reach a status of 75% decentralized collateral to back the DAI.

As mentioned in the Endgame Plan, DAI will remain 1:1 with USD for at least 3 years and the timeline for free-floating away will be delayed if there is no immediate authoritarian threat.

Does free float make sense?

Well, this is a topic to be debated, but there does not exist any decentralized crypto-backed stablecoin of DAI’s size. Even Reflexer Finance’s free-floating RAI which is purely crypto-collateralized and not USD-pegged has a circulating supply of 5.2 million compared to DAI’s 6.5 billion.

With that huge difference in scale, it is not easy to compare how DAI would function and whether the demand for free-floating crypto would be maintained.

Collateral Strategies

The Endgame Plan proposes 3 different collateral strategies: Pigeon Stance, Eagle Stance and Phoenix Stance. These stances lie on a spectrum of high RWA exposure to 0 RWA exposure. More RWA exposure enables higher growth, but at the cost of less resilience.

Read more now!

Market Movement

The stETH pools on Tempus fixed-income have matured. New pools will be live once the Ethereum network is successfully merged into the PoS blockchain.

Other pools on the Ethereum network include USDC, offering up to 3.16% APR and DAI, offering 4.19% APR.

Interested in earning fixed rates? Fix them now! Click here.

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Disclaimer

The information provided in this article is provided for informational purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation to buy, sell, or otherwise transact in any investment, including any products or services, or an invitation, offer, or solicitation to engage in any investment activity. You alone are responsible for determining whether any investment, investment strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. In addition, nothing in this article shall, or is intended to, constitute financial, legal, accounting, or tax advice. We recommend that you seek independent advice if you are in any doubt.

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