Published
1 year ago on
September 01, 2022
Table of Contents
MakerDAO co-founder Rune Christensen outlined his vision for the DAI stablecoin, outlining the importance of a free-floating DAI and limited RWA (Real World Asset) exposure.
Christensen suggested turning the stablecoin into a free-floating asset if the protocol cannot reach the 75% decentralized collateral threshold within three years.
Cannot Be A Stablecoin Forever
Rune proposed his “Endgame Plan” after the US Treasury Department moved to sanction Tornado Cash earlier in the month. He stated that this plan was necessary to shield the asset from regulatory authorities. The proposal highlights and addresses Christensen’s concerns about the threat to MakerDAO from regulatory authorities and the amount of USDC backing the DAI stablecoin.
Christensen believes that the DAI stablecoin cannot remain a stablecoin forever and shared a detailed post about the subject on the MakerDAO forum. The post outlined the co-founder’s proposal to make the DAI stablecoin a free-floating asset in the future. The post, titled “Endgame Plan timeline to a free-floating DAI,” focused on the lending of DAI against Real World Assets (RWAs) to bolster revenues. It then suggested using the profits generated from the issuance of loans to acquire ETH, which would be used as collateral to back the DAI stablecoin.
The plan stated that MakerDAO’s success in accumulating ETH over the next three years would determine if the protocol should consider letting the DAI stablecoin drift from its current peg and become a free-floating asset.
New Collateral strategies
Christensen’s Endgame Plan includes three collateral strategies - Pigeon Stance, Eagle Stance, and Phoenix Stance. All three lie on a spectrum between no RWA exposure to high RWA exposure. According to Christensen, while high RWA exposure enables higher growth for the protocol, it reduces its resilience. Out of the three, the Pigeon Stance is considered the most lenient and would also be the DAO’s default strategy as it prioritizes maximum growth and gives the protocol unlimited RWA loan exposure.
Eagle’s stance is a more balanced strategy, giving importance to both growth and resilience by limiting the protocol’s exposure to 25% of all loans. The most conservative out of the three is the Phoenix stance, which stipulates that MakerDAO takes on no sizable exposure to RWAs.
The Way Forward
According to Christensen, MakerDAO would start with the Pigeon Stance, which would be in place for three years. In these three years, the protocol will try to acquire as much ETH as possible, making DAI more resilient to authoritarian threats. Christensen defined these threats as ranging from government agency pressure to sanctions, such as the ones that forced Circle to freeze USDC funds held in MakerDAO vaults. Christensen had previously observed that the protocol’s over-reliance on USDC could pose a threat after the issuer froze funds deposited into Tornado Cash.
“If the protocol reaches 75% decentralized collateral organically from the accumulation of ETH during Pigeon Stance, then it can switch to Eagle Stance without resulting in Dai going free-floating,”
However, if the protocol is unable to reach the desired 75% threshold, the post said it would make sense to allow DAI to drift from its dollar peg. However, regardless of how things may pan out, the plan stipulates that the DAI would remain pegged to the dollar for at least another three years.
A Furious Debate
The Endgame Plan has been the subject of a wide-ranging discussion on MakerDAO’s forums, where Christensen argued that the current regulatory environment could force the DAI to break its dollar peg. The proposal has faced some pushback from the community, with one member arguing,
“I disagree that free-floating DAI will be of much help. Why would an authoritarian government disallow fiat pegged stable assets but permit free floating stable assets (or even volatile base crypto assets for that matter) when they still undermine government control over the monetary system?”
However, the proposal also received support, with one user stating,
“It’s so good to finally see this recognized by weighty MKR voting power. I’ve been in the minority warning about this exact risk for years.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
Investment Disclaimer
