MakerDAO Files Emergency Proposal to Address $3.1B USDC Exposure

MakerDAO Files Emergency Proposal

MakerDAO, the issuer of the Dai (DAI) stablecoin, have requested an „urgent executive proposal to mitigate risks to the protocol“ due to having multiple collaterals worth over $3.1 billion exposed to USDC tail risk.

Proposed Changes

The proposed changes include reducing the debt ceiling for several liquidity provider collaterals to 0 DAI, reducing daily minting limits for two stability modules from 950 million DAI to 250 million DAI and increasing fee from 0% to 1%, eliminating exposure to decentralized finance protocols Curve Finance and Aave entirely, and increasing protocol’s debt ceiling for Paxos Dollar (USDP) from 450 million DAI to 1 billion.

Reasoning Behind Proposal

The reasons behind this proposal are due in part to extraordinary depegging of USDC that began on March 10th and also due to Curve’s use of a fixed $1 price for USDC which could potentially lead to bad debt accrual and bank runs with cascading market insolvency if the market price of USDC falls significantly below its collateral factor. Additionally, although Aave doesn’t present any such risks as Curve, Maker thinks that its „overall risk-reward of depositing funds into the D3M are not favorable under current conditions.“

Paxos Trust Company

Paxos Trust Company is an issuer of Paxos Dollar (USDP), a stablecoin whose proposed changes include an increase in debt ceiling from 450 million DAI to 1 billion. It consists primarily of U.S. treasury bills, reverse repurchase agreements collateralized by U.S. treasury bonds which presents relatively lower potential for impairment than other available stablecoins.

Timeline Expectations

Proposal(s) implementing these changes are expected by MakerDAO within 12 hours or less after posting on their forum post on March 11th.