MakerDAO Co-Founder Advocates De-pegging DAI Amid OFAC Sanctions

Key Takeaways

  • Rue believes free-floating DAI would reduce the impact of crackdowns on the overall protocol.
  • The Co-founder proposed excluding USDC from DAI’s collateral assets.
  • Circle’s USDC stablecoin mainly collateralizes MakerDAO’s DAI, and Circle had complied with OFAC sanctions on Tornado cash.

MakerDAO’s co-founder Rune Christensen is now considering depegging DAI amidst the sanctioning of Tornado Cash by OAFC. In his blog post titled, “The Path of Compliance and the Path of Decentralization: Why Maker has no choice but to prepare to free float Dai,” Christensen states

Physical crackdown against crypto can occur without advance notice and with no possibility of recovery even for legitimate, innocent users. This violates two core assumptions that we used to understand risk-weighted assets(RWA) risk, making the authoritarian threat a lot more serious.”

Justifying why he thinks de-pegging is the only way out, Rune points out that with the increasing sanctions, Maker is provided with only two options either become compliant and operate like a neobank or engage in decentralization by minimizing the degree that regulatory crackdowns can damage the protocol.

Rue believes $DAI cannot become completely compliant because it was engineered so that no blacklist can be possible.

Therefore, the only option left is the decentralized route. Doing this would convert most of MakerDAO’s collateral into another cryptocurrency with no locked value.

Rue, however, believes the market may finally start to reward decentralization to the point where these risks are acceptable because USDC is no longer the no-brainer it used to be.

Rue further adds that free-floating would reduce the impact of crackdowns on the overall protocol. “The only choice is then to limit attack surface by reducing RWA exposure to a maximum fixed percentage of the total collateral – this requires free floating away from USD.”

Since the demand for $DAI may not be met by additional $ETH backing, a peg could be maintained only through a negative target interest rate, which would drive away $DAI demand.

The MakerDAO co-founder believes using MetaDAOs and the Protocol Owned Vault(POV) will make decentralization much smoother.

MetaDAOs and their tokens allow yield farming to give $DAI additional use cases and demand. In contrast, POV allows Maker to accumulate staked $ETH and become a net issuer of $DAI.

Circle’s USDC stablecoin collateralizes approximately 50.1% of MakerDAO’s DAI. Rue has earlier also raised concerns over the asset’s high reliance on a centralized asset in USDC, as Circle has decided to comply with the United States law in the case of Tornado Cash.

Right when the US treasury blacklisted Torando Cash, Circle CEO Jeremy Allaire wrote: “On Monday, August 8, the systems we have in place to comply with applicable law and government regulations worked.

Centre, the consortium behind USDC, followed the US Treasury sanctions against Tornado Cash and blocked the related addresses.”

This has set a dangerous precedent and has raised concerns about financial privacy in Web3 in an increasingly regulated world. By depegging DAI, the MakerDAO founder believes he could reduce the implication of regulatory crackdowns on the protocol.

Saniya Raahath
Saniya Raahath

Newsletter

Crypto News, NFTs and Market Updates

Crypto Products

Can’t find what you’re looking for? Type below and hit enter!

Can’t find what you’re looking for? Type below and hit enter!