DAI undergoes major upgrade, Maker introduces two stablecoins to meet regulatory and decentralized requirements simultaneously

MakerDAO founder Rune Christensen announced on Twitter that a major upgrade to the DAI stablecoin is in progress. In the future, there will be two stablecoins in its ecosystem: one, yet to be named, to comply with regulatory requirements, and the other, also unnamed, to align with the decentralized ethos.

This article is compiled and translated. For any uncertainties, please refer to the original source.

The Contradiction of Stablecoins

Rune expressed that the moment Dai began to scale, it crossed two worlds - the crypto world that advocates decentralization and the real world that presents new opportunities by combining with traditional finance.

However, these two worlds are fundamentally contradictory. It is impossible for stablecoins to achieve large-scale adoption while being linked to the US dollar and maintaining pure decentralization.

The biggest issue with the current scalability of DAI stablecoin is: in order to embrace the decentralized concept, it's not easy to make breakthroughs in compliance. If profit is to be provided through RWA, more compliance efforts have to be made, but the nature of the token cannot meet the requirements.

Rune believes that there are two main paths to resolve the contradiction of stablecoins:

Linking to the US Dollar and Integrating Real-World Assets

To prioritize utility and scale, choosing to link to the US dollar and integrate real-world assets can rapidly expand the ecosystem. This requires integration with traditional finance (TradFi) and consistency in regulatory requirements.

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It is clear to everyone that it is nearly impossible to find a mainstream DeFi project that has not made such trade-offs today, for example, Aave's introduction of RWA lending services. Stablecoin projects are no exception, for instance, USDC issuer Circle regularly releases audit reports and can freeze suspicious funds at any time.

Pursuing the Pure Decentralization Concept

Another path is to strive for pure decentralization, which requires a structure and design completely independent of centralized control, along with a strict liquidation mechanism relying heavily on decentralized collateral. Therefore, achieving a high level of decentralization means no connection to the real world or even DAOs.

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Hence, from a traditional perspective, completely decentralized stablecoins are extremely challenging to achieve. However, it seems that there is still a stable user base for such stablecoins, indicating a demand for decentralized stablecoins.

Maker Decides to Pursue Both Paths Simultaneously

Rune stated that Maker will not make a choice but will attempt both paths. However, it will not impose conflicting concepts on a single stablecoin but will create two stablecoins, each serving its purpose.

In the future, Maker will launch two stablecoins based on DAI:

• NewStable: Compliance-oriented
• PureDai: Decentralization-oriented

As part of Maker's Endgame Plan for stablecoin updates, by completely separating the two conflicting token economies and designs, DAI will better achieve its goals, reduce compromises, and better meet the needs of both user groups.

NewStable: Compliance-Centric

The team considers the yet-to-be-named NewStable as the primary successor to DAI, focusing on ecosystem growth, scalability, and most importantly, compliance. NewStable aims to enhance the utility and adoption of stablecoins, with all functions tailored towards this goal.

Rune mentioned that NewStable is still considered a decentralized stablecoin, with governance allowing flexibility in protocol design and increased transparency.

NewStable to Integrate Existing Traditional Financial Services

NewStable will take over the current integration of RWA and traditional financial-related services from DAI and continue to optimize them. Through decentralized governance processes, it can adapt to changing environments, maintaining flexibility in the broader traditional market.

After a transition period of about a year, DAI's savings rate (DSR) will gradually be phased out, with final rewards only distributed to NewStable.

NewStable will remain under the jurisdiction of MakerDAO.

NewStable to Feature Transfer Freeze Functionality

To facilitate global expansion smoothly, a "transfer freeze function" will be introduced over time to comply with government regulations. For instance, USDT and USDC currently use freeze functions to block suspicious flows as required by authorities.

The freeze function will not be immediately implemented but will require governance approval to activate. The official implementation timeline may be months or even years later, depending on NewStable's growth status.

The original DAI stablecoin will remain unchanged, as its ERC-20 implementation lacks backdoor contracts, making it impossible to modify and add freeze functionality.

PureDai: Decentralization-Centric

Maker's other stablecoin, yet to be named PureDai

PureDai Enhances Decentralized Liquidation Mechanism

In the future, Dai holders can choose to upgrade their Dai to PureDai, seen as a return to decentralized ideology. PureDai will only feature purely decentralized collateral such as ETH and stETH, without more centralized assets like USDC.

Moreover, PureDai will have a freely floating peg not necessarily linked to the US dollar, coupled with a highly decentralized oracle, ensuring that no organization including MakerDAO can modify it.

PureDai Completely Independent of MakerDAO Control

To minimize legal compliance risks for PureDai and meet the principles of censorship resistance and decentralization, PureDai will be released in a final immutable contract form after launch.

Once PureDai is issued, the contract will not and cannot be further upgraded or altered, completely independent of Maker's control. Once the contract is initiated, PureDai will have no relationship with Maker whatsoever.

Therefore, the contract setup for PureDai is crucial, and Rune believes it will take at least a few years to launch.

PureDai Exclusively Deployed on Ethereum

In addition, PureDai will only be deployed on the Ethereum mainnet, although certain Layer2 and cross-chain bridges may choose to support it and bridge it to other blockchain networks.

What Do Users Need to Do?

Existing Dai holders will be able to upgrade to either of these options or continue holding Dai if they have concerns. Additionally, Dai, NewStable, and PureDai can be exchanged on a one-to-one basis at any time.

NewStable and PureDai can be converted to each other at any time

Dai holders will be able to upgrade to NewStable upon its release, but they can also choose to continue using Dai, which will remain as it is, pegged to the US dollar. They can even revert NewStable back to Dai at any time based on user preference. The same applies to PureDai.

As most users and applications are expected to transition to NewStable or PureDai, Dai is anticipated to be completely phased out. The timing of this phase-out will depend on the speed of adoption of NewStable and PureDai in the ecosystem.

More updates will be available in the coming weeks.