Even though such a conversion may increase the price of ETH, Vitalik Buterin considered it a “bad idea.”
Rune voiced worry in the governance channel of MakerDAO’s official Discord on the US Treasury Department’s recent penalties against Tornado Cash’s privacy protocol. “It is more severe than I first believed,” he remarked.
“I believe we should seriously explore preparing to depeg from the USD,” he added, adding that such a shift is “almost unavoidable” and should only be undertaken with extensive planning.
In his words, this may be accomplished by an “uprooting” or “yolo USDC into ETH strategy.”
Tuesday, Circle CEO Jeremy Allaire said that the Bank Secrecy Act required Circle (the issuer of USDC) to cooperate with the Treasury Department’s penalties on Tornado Cash. As a result, it used its jurisdiction to place a freeze on USDC at all sanctioned addresses and associated businesses.
While about half of its deposits consist of USDC, the other half consists of ETH and other less centralised cryptocurrencies. Theoretically, transferring USDC reserves to ETH might eliminate the possibility of MakerDAO’s assets being frozen by Circle, as well as increase the price of ETH.
However, Vitalik Buterin, co-founder of Ethereum, is opposed to the proposal.
This seems to be a dangerous and horrible plan,” he tweeted. “If ETH falls significantly, the value of the collateral will collapse, but CDPs would not be liquidated, putting the whole system in danger of becoming fractional reserve.”
The decentralization of stablecoins
The developer noted that DAI might avoid centralization issues by diversifying its reserves to the point where no asset accounts for 20% of the total.
Rune acknowledged on MakerDAO’s Discord that the conversion might raise the chance of DAI losing its dollar peg, but he still considers a “partial uprooting” to be worth the risk.
He said, “I believe the market may eventually begin to favour decentralization to the point where these risks are tolerable, since USDC is no longer a no-brainer.”
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