On March 11, 2023, the decentralized finance project Makerdao issued an emergency suggestion following the USDC depegging incident that caused the stablecoin to dip down to $0.877 per unit. Makerdao currently holds $3.1 billion in USDC collateral that backs its own stablecoin, DAI.
Makerdao Seeks to Limit Exposure to Potentially Impaired Stablecoins
Contributors to Makerdao have been discussing a recent emergency proposal that aims to address the $3.1 billion in USDC assets the project holds as backing. The news follows after Circle Financial revealed it had money stuck at the financial institution Silicon Valley Bank (SVB) and the firm’s stablecoin, USDC, was trading below its $1 parity. USDC is currently trading at $0.91 per coin, while another five stablecoin assets have been affected.
Makerdao’s DAI stablecoin is now at $0.92 per coin, while the stablecoin touched a 24-hour low of $0.881 per DAI. Given DAI’s unstable behavior, Makerdao has issued an emergency suggestion to address the $3.1 billion in USDC it holds.
“The proposed changes are intended to limit Maker’s exposure to potentially adversely affected stablecoins and other high-risk collateral while maintaining enough liquidity to prevent DAI from trading significantly over $1 if conditions change and ensuring there is sufficient market liquidity to process possible liquidations of crypto-collateralized vaults,” the proposal states.
The proposal further explains the backing “are exposed to potential USDC tail risk.” Additionally, Makerdao notes that “proposal(s) implementing the above changes are expected to be posted in the next ~12 hours or less.” Makerdao is asking all voters to review and support the proposals “as soon as possible.”
This isn’t the first time Makerdao has had issues with DAI’s backing as precisely three years ago, during the March 12 “Black Thursday” event, the diminishing price of ethereum (ETH) pressured the stablecoin project. Estimates indicate that roughly $4 million worth of the stablecoin DAI was left underwater due to an auction failure.
What will be the consequence of Makerdao’s proposed modifications on the decentralized finance space and the stability of stablecoins? Share your thoughts in the comments below.
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