MakerDAO Community Approves USDC As DeFi Collateral Amidst Liquidity Concerns
The MakerDAO community has just approved the onboarding of USDC during its ongoing liquidity crisis. This situation was brought about by a $4.5 million discrepancy that arose in the past week when ETH saw its price plummet amid the bear market.
The news emerged that MakerDAO, a player in DeFi space, held official talks in regards to onboarding the USDC as alternative collateral. And has just now been approved. According to them, this should help input more DAI liquidity into the DeFi realm marking USDC as the third collateral after ETH and BAT.
Notably, the DAI project is unsettled by its liquidity concerns that came about when their liquidators dubbed keepers were able to secure collateral liquidations auctions. This meant that they were not required to compensate the system with DAI for their debts hence resulting in the $4.5 million discrepancy on DAI books.
USDC can now be used to open Maker Vaults in order to generate Dai. It's the third collateral approved by Maker governance, along with ETH and BAT.
More info & USDC risk parameters: https://t.co/jYUtOfI1cX
— Maker (@MakerDAO) March 17, 2020
MKR holders to Initiate process
Naturally, the process would be initiated by the MKR holders ‘executive’ vote on the proposal. But according to the announcement, the foundation is already on course with technical preparations to facilitate the process.
This strategic move should be instrumental as it pushes the DAI back to $1. The cycle involves locking USDC, Minting DAI and then sell the USDC and so on in a bid to restore liquidity. It also affords vault owners the luxury of closing their vaults without enduring the setbacks as the DAI peg is quite high in comparison to USD.
There are however concerns that onboarding the USDC will reduce the so-called ‘purity’ of DAI, questioning its decentralized nature. If anything goes wrong, this will not only be a PR nightmare but also spike regulatory risks in case the US government becomes hostile to stablecoins backed by USD.
MakerDAO top leaders were quick to counter the sentiments that DAI would lose its decentralized nature after onboarding USDC. They insisted that the DAI is decentralized because there isn’t a central authority in the site to oversee functionalities.
“To say that DAI is not decentralized because of some of the assets that might back it would be erroneous”
A couple of things still require planning as they are yet to decide on the intended stability fee increase. The DAI team also needs a liquidation ratio that is evenly balanced which is lower than ETH but just low enough to not allow a single vault to mint all the USDC. Lastly, they need to think of a debt ceiling enough to provide the required liquidity but also without accruing additional risks.