Proposed Urgent Measures by MakerDAO Amid Concerns of Impact from USDC Depegging Event
MakerDAO, the leading lending protocol in the DeFi industry, has proposed urgent measures to mitigate risks associated with the recent USDC depeg event. On March 11th, the second-largest stablecoin by market capitalization, USDC, lost its peg and dropped to as low as $0.87 – the lowest level since its creation in 2018, following the collapse of Silicon Valley Bank.
To address this situation, MakerDAO has proposed an emergency out-of-schedule executive proposal, which includes urgent parameter changes to multiple vault types, PSMs, and D3Ms, as well as a reduction to the GSM Pause Delay. If the proposal passes, the changes and additions listed will only become active in the Maker Protocol after the GSM Pause Delay has expired, which is currently set to 48 hours.
To address the uncertainty surrounding the centralized stablecoin market, the Risk Core Unit has submitted an emergency proposal for Executive Vote to limit Maker’s exposure to impaired stablecoins and reinforce the DAI peg.
— Maker (@MakerDAO) March 11, 2023
The specific proposals are as follows:
Reduce the debt ceiling to zero for collateral assets related to USDC: Collateral assets related to USDC, including UNIV2USDCETH-A, UNIV2DAIUSDC-A, GUNIV3DAIUSDC1-A, and GUNIV3DAIUSDC2-A, will not be used as collateral to borrow DAI. This proposal ensures that there will be no risk of mass liquidation, which could harm both the protocol and users if USDC continues to depeg.
Reduce the mint parameter for DAI through PSM-USDC-A: The PSM is a vault designed to ensure liquidity and peg stability for DAI. Before the negative USDC fluctuations, a large amount of USDC was deposited into Maker’s PSM-USDC vault to mint DAI to avoid risk. However, if USDC continues to depeg, Maker will have to “hold the risk.” To prevent this, the protocol has proposed reducing the maximum 750M DAI minted per day through PSM-USDC to only 250M DAI per day.
In the last 24 hours, a total net of 736 million DAI has been minted against USDC through the PSM.
→ https://t.co/brBzEorsc1 pic.twitter.com/LagDeVBKU0
— Maker (@MakerDAO) March 11, 2023
Reduce the mint parameter limit for DAI from PSM-GUSD-A: Although GUSD is not currently related to Silvergate or Silicon Valley Bank, it still poses risks related to its unsecured deposits in banks and credit institutions. To avoid a chain reaction, MakerDAO proposes reducing the mint parameter limit for DAI from PSM-GUSD-A from $50 million per day to only $10 million per day.
Increase the mint parameter limit for DAI from PSM-USDP-A: After reducing the parameters from the above two PSM vaults, to ensure that DAI is still pegged and has stable liquidity, Maker has decided to increase the limit of PSM-USDP-A.
Compound V2 D3M: Since Compound V2 uses a fixed price of $1 for USDC, MakerDAO has decided to deactivate and withdraw funds from this vault to avoid risks.
AAVE V2 D3M: Unlike Compound, AAVE V2 uses a market price through an Oracle. However, given the current market conditions, Maker has also decided to withdraw funds and halt this program.
Governance Security Module: Finally, to ensure timely implementation of these proposals, MakerDAO has proposed a governance security module.
In conclusion, MakerDAO’s urgent proposals demonstrate its commitment to protecting its operations and users from the risks posed by the USDC depeg event. The protocol’s actions reflect its willingness to take decisive measures to ensure the stability and sustainability of the DeFi ecosystem.
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