MakerDAO (MKR) is planning to deposit $1.6 billion in USDC on Coinbase Prime to earn a yield of 1.5% per year. The decision could set the DeFi protocol on the path to centralization, criticize many of the experts from MakerDAO.
MakerDAO is a crypto lending platform built on Ethereum. The protocol has more than $7.59 billion in total value locked (TVL) and is arguably the most influential in DeFi. Maker allows users to mint DAI, its so-called overcollateralized stablecoin. Users looking to hold the token need to provide assets from a range of crypto assets into the MakerDAO protocol as collateral. This helps maintain DAI’s peg to the dollar. Unlike Tether’s USDT or Circle’s USDC, both are controlled from a central point. DAI offers an unprecedented degree of decentralization because of a lack of central authority controlling its issuance.
MakerDAO's proposals path the way to less decentralization
Members of MakerDAO now are voting on a series of historic proposals that, if approved, will completely change the protocol. Voting has been going on since Oct. 10 and is expected to after a few weeks. One of the proposals being voted for involves the transfer of around $1.6 billion in USDC, to American exchange Coinbase Prime to earn an annual yield of 1.5%. The amount represents a third of the USDC used to back MakerDAO’s DAI stablecoin.
As of writing, the proposal has garnered an overwhelming of support from the community. With just three days before the poll closes, and only 0.05% voting “nay”, it looks likely that the proposal will pass. The proposal was led by the Strategic Finance and Growth core units of MakerDAO.
Concerns around centralized services
Observers are concerned about Maker’s relationship with Coinbase, a centralized exchange prone to government and corporate whims. In August the consortium behind USDC, blacklisted 38 wallets. While freezing the $75,000 they held following the sanctions. The consortium, set up by Circle and Coinbase, has now banned 81 wallet addresses since the launch of USDC in September 2018. The blacklisting of Tornado Cash wallets brought the decentralization of DAI into focus.
DAI’s peg to the dollar is maintained by Peg Stability Module. This allows users to swap stablecoins such as USDC on a one-to-one basis in exchange for DAI. But it shouldn’t matter that MakerDAO is staking USDC with Coinbase? The protocol already holds a large amount of the stablecoin. According to Daistats, DAI is 40% backed by USDC. That is the equivalent of $3.4 billion. It is the single-largest collateral asset backing DAI.
When @MakerDAO first launched $DAI, it took pride in its decentralization & censorship resistance.
So why is it about to throw it all away and place DAI's future in the hands of regulated 3rd parties like @coinbase?
I give a simplified run-down of the issue in this video. pic.twitter.com/oIpWAvQLJM
— CS Bastiat (formerly Chris Blec) (@CSBastiat) October 19, 2022
The great MakerDAO revision
The multiple proposals being voted for today are based on Christensen’s preferred vision of the protocol. Earlier in May, Christensen published Endgame, a roadmap detailing his plan for restructuring MakerDAO. The founder has spoken against MakerDAO’s decentralized governance model since the dissolution of the Maker Foundation in 2021. He criticized the lack of interest from community members to vote on key protocol proposals as a major factor limiting Maker’s ability to manage difficult financial agreements. So, he proposed to unbundle Maker into several units called “MetaDAOs”.
Each MetaDAO would have its own token. It would be managed by a committee that is separate from Maker’s broad-based governance system. The new structure is designed to neutralize the effect of varying competing interests within the MakerDAO community. The most substantial token holders appear to have already sided with Christensen.
