DEFI

MakerDAO considers abandoning USDC to purchase $3.5 billion worth of ETH, Vitalik: Not appropriate

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MakerDAO considers abandoning USDC to purchase $3.5 billion worth of ETH, Vitalik: Not appropriate

Yearn's core developer Banteg discussed the popular DeFi protocol MakerDAO, considering abandoning USDC to buy $3.5 billion worth of ETH, bringing ETH into the peg stability module.

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Yearn's core developer Banteg discussed the popular DeFi protocol MakerDAO, considering abandoning USDC to buy $3.5 billion worth of ETH, bringing the ETH into the peg stability module.

However, Ethereum co-founder Vitalik expressed that this sounds like a highly risky and bad idea. If ETH depreciates significantly, the value of the collateral will also decrease, and the collateralized debt positions (CDPs) may not be able to be liquidated, posing a risk for the system to become a partial reserve system.

Recently, Tornado Cash faced sanctions, and USDC issuer Circle also cooperated with regulators, leading the DeFi community to reconsider the risks brought by centralized assets. Since USDC accounts for the majority of collateral assets for the stablecoin DAI, some questioned how to address the dependency on USDC.

Vitalik believes that non-ETH single collateral assets should not exceed 20% of the total collateral assets. It should even be limited to a maximum of 20% of collateral assets in each jurisdiction. If this cannot be achieved, growth of DAI should be restricted until the issue is resolved.

A user then asked, what should these assets be? If it is 19% USDT, 19% USDC, and 19% FRAX, the problem remains unsolved as they all contain centralized asset components.

However, if ETH is not used, and stablecoins are not used, it will bring back the issue of volatility, potentially leading to risks in partial collateral liquidation.

Vitalik suggested that perhaps 19% USDC, 19% Euros, and 19% Singapore Dollars could be used. It seems that Vitalik believes that a diversified fiat asset approach could help maintain stability for DAI.