MakerDAO, the governance community of the popular DeFi lending platform Maker, has decided to keep using USD coin (USDC) as the primary reserve asset for the DAI stablecoin.
Although USDC experienced a temporary depeg earlier this month, an overwhelming majority of the MakerDAO have chosen to retain their faith in the world’s second-largest stablecoin, dismissing any other viable options.
USDC Depegged Following SVB’s Collapse
On March 10, news broke out about the collapse of the Silicon Valley Bank (SVB), one of America’s largest banks and a major banking partner of Circle, the issuing company of the USDC stablecoin.
The following day, Circle released a statement saying that about $3.3 billion of the USDC reserves were stuck with SVB, leading to much panic among investors.
Although Circle provided much assurance that the company would cover all potential shortfalls using personal resources, it was not enough to neutralize the negative sentiment around USDC, causing the stablecoin to depeg from its $1 mark. While USDC soon regained its peg, its value initially fell as low as $0.87, causing much concern for other stablecoins and DeFi protocols, including Maker.
USDC De-pegs On March 11 | Source: USDCUSD Chart on Tradingview.com
MakerDAO Rejects Plan To Diversify From USDC
In response to the depegging event, the MakerDAO was forced to review its DAI reserves which were all stored in USDC. This is because the DAI token is considered vital to the multi-collateral lending operation of the Maker. In addition, DAI also serves as the native stablecoin of the protocol.
To protect investors’ assets from similar depegging debacles in the future, the Risk Core Unit of the Maker protocol proposed on March 17 that the DAI reserves be diversified into other stablecoins, nominating the Gemini Dollar (GUSD) and Paxos Dollar (USDP) as viable alternatives with lower market risks.
Source: vote.makerdao.com
In a poll on March 20, the MakerDAO strongly rejected the proposal, with 79.02% voting to “Maintain USDC as the Primary Reserve” as against the mere 20% that voted in favor of diversification. These poll results are highly welcomed, especially during a time when many investors’ confidence in USDC is shaken.
The Maker protocol remains the second largest DeFi platform in the market, with a TVL of $7.65 billion. It was launched back in 2017 and is widely regarded as the first-ever successful DeFi project.
State Of The Crypto Market
Currently, the general crypto market appears to be bearish, with most assets recording an overall loss in the last week. For example, data from Coingecko shows that Ethereum (ETH), Binance Coin (BNB), and Polygon (MATIC) have all suffered losses to the tune of 1.8%, 4.0% and 9.9% in the last seven days. Meanwhile, Bitcoin has managed to stay afloat, gaining by only 0.9% in the same period.
However, some tokens have been able to pull off a remarkable uptrend in the last few days. For example, Ripple (XRP) has recorded an overall profit of 18.0% in the last week as optimism concerning the Ripple vs. SEC court case continues to grow, with a ruling expected in the first half of 2023.