MakerDAO files emergency proposal addressing 3.1B USDC exposure

“Proposal(s) implementing the above changes are expected to be posted in the next ~12 hours or less,” says MakerDAO.

According to a forum post from MakerDAO, the issuer of the U.S. dollar-pegged DAI (DAI) stablecoin, on March 11, the firm requested an “urgent executive proposal to mitigate risks to the protocol.“ Maker said it possessed multiple collaterals “exposed to USDC tail risk” in light of the extraordinary depegging of the USD Coin (USDC) stablecoin that began on March 10. MakerDAO currently has over $3.1 billion worth of USDC in collateral backing DAI.

Firstly, Maker proposes reducing the debt ceiling of UNIV2USDCETH-A, UNIV2DAIUSDC-A, GUNIV3DAIUSDC1-A and GUNIV3DAIUSDC2-A liquidity provider collaterals to 0 DAI. Next, Maker wants to reduce the daily minting limits of its USDC peg stability module from 950 million DAI to 250 million DAI, and increase the fee from 0% to 1% to prevent “excessive dumping of USDC.“ Another stablecoin module, GUSD, will also see its daily minting limit reduced from 50 million DAI to 10 million DAI if the proposal passes.

Maker also wants to eliminate exposure to decentralized finance protocols Curve Finance and Aave entirely. According to Maker, Curve “uses a fixed $1 price for USDC,“ which “presents a risk of bad debt accrual and potentially bank runs with cascading market insolvency if the market price of USDC falls significantly below the current collateral factor.“ While Aave doesn’t possess such risks, Maker nevertheless stated that its “overall risk-reward of depositing funds into the D3M are not favorable under current conditions.“

Finally, Maker proposes increasing the protocol’s debt ceiling for the Paxos Dollar (USDP) stablecoin issued by the Paxos Trust Company from 450 million DAI to 1 billion. The firm wrote:

“Paxos has relatively stronger reserve assets versus other available centralized stablecoins, consisting primarily of U.S. treasury bills, reverse repurchase agreements collateralized by U.S. treasury bonds. They face relatively lower potential for impairment versus other available stablecoins”

On March 10, USDC depegged from the U.S. dollar after its issuer, Circle, disclosed it had $3.3 billion worth of funds collateralizing the stablecoin stuck in now-defunct Silicon Valley Bank. At the time of publication, USDC is currently trading at $0.9025. In light of the news, the DAI stablecoin has also degged to $0.9235.