MakerDAO’s DAI has been dragged down by the USDC’s fall below the dollar peg. To protect the integrity of its stablecoin, the project’s governance adopted emergency measures this afternoon.
MakerDAO adopts emergency measures to strengthen DAI
DAI, MakerDAO’s decentralized stablecoin, is taking the brunt of Circle’s USDC dollar peg loss. Like other stablecoins, it has become a collateral victim of the collapse of Silicon Valley Bank (SVB).
Currently at $0.95, the DAI is thus paying the price for its often blamed high collateralisation in USDC. In order to reduce the collateralisation, emergency measures have been proposed on the MakerDAO governance forum by a member of the Risk Core Unit.
This proposal was voted on this afternoon, and thanks to the favourable outcome of the vote, it will be implemented on Monday 13 March at 17:14 Paris time:
Maker Governance has enacted a set of parameter changes through the latest emergency vote to reinforce the DAI peg.
Submitted parameter changes are scheduled for deployment in 48 hours, on March 13th at 16:14 UTC. https://t.co/JDHXrDDsih
– Maker (@MakerDAO) March 11, 2023
Important elements of this governance decision
The main measure concerns the daily limit of IADs that can be generated using USDC from the Peg Stability Module (PSM). While this was set at 950 million IADs, it will now be capped at 250 million. In addition, a foreign exchange charge from USDC to DAI has been applied at a rate of 1%.
Due to “significant exposure to uninsured bank deposits”, Gemini’s GUSD has also had its daily cap lowered from AED 50 million to AED 10 million.
Conversely, MakerDAO’s governance has recognised the strength of Paxos’ reserves, particularly its USDP stablecoin. Therefore, the collateralised debt limit via the latter is increased from AED 450 million to AED 1 billion. The daily issuance limit in the SMP is increased from DAI 50 million to DAI 250 million and the exchange fee is removed in the USDP to DAI direction and increased to 1% in the opposite direction.
Several Uniswap liquidity tokens (LP-Tokens) involving trading pairs containing USDC were also subject to measurement. Once the proposals come into force, it will no longer be possible to raise debt from the following LP-Tokens on the grounds that they are too risky and “not essential to maintaining adequate DAI liquidity”:
- UNIV2USDCETH-A ;
- UNIV2DAIUSDC-A ;
- GUNIV3DAIUSDC1-A ;
- GUNIV3DAIUSDC2-A.
These are the main points of the measure that was adopted, and the entire proposal was detailed in the Twitter thread above.
While we wait for the current situation to return to normal, it is interesting to see how quickly this decentralised autonomous organisation (DAO) was able to preserve the sustainability of this stablecoin with a capitalisation of more than 5 billion dollars. The future will now show how effective these measures will be when implemented.
