[Alerte] DAI stablecoin may fall below $1 like TerraUSD, here’s why!

The remarks were made on MakerDAO’s discord channel on Thursday, August 11, after Tornado Cash was sanctioned by the US Treasury this week. Following this, Circle, the US-regulated company behind the USDC stablecoinbegan freezing all affected USDC addresses.

While 44 addresses were restricted, users were banned from using Tornado Cash. Circle was forced to freeze stablecoins worth $75,000.

According to Rune, the penalties are worse than he initially thought. He argues that the DAO should really consider preparing to detach from the dollar. It is virtually certain that this will happen and can only be accomplished with a demanding level of planning.

Rune also suggested turning USDC into ETH. Currently, USDC is used as collateral for nearly 50% of MakerDAO’s DAI stablecoin. In light of this heavy reliance on a single stablecoin and centralized asset, Rune Christensen expressed concern.

“71.79% of DAIs are backed in centralized stablecoins” “12% of $DAIs are backed by… $DAIs” 🥲 simple reminder of a decentralization that seems utopian, what do you think? source: trade me away $DAI #StableCoin https://t.co/Q8WAijWYT8

DAI is now the fourth-largest stablecoin in the US dollar-linked market, with a market capitalization of $7.3 billion.

From USDC to ETH? A terrible idea according to Vitalik Buterin!

@bantg, a key engineer at Yearn.finance, said MakerDAO may consider converting all of its $3.5 billion USDC into ETH. Therefore, against the current 7%, more than 50% of DAI tokens will be backed by Ethereum, which is not stable!

@bantg Errr this seems like a risky and terrible idea. If ETH drops a lot, value of collateral would go way down but CDPs would not get liquidated, so the whole system would risk becoming a fractional reserve.

The MakerDAO community reacted soon after Rune’s suggestion, with some calling it a new Terra in the making. A similar mistake was made by Terraform Labs when they leaned on a large amount of the USDT to Bitcoin.

Read also Crash of Terra (LUNA / UST): did CEO Do Kwon steal 2.7 billion from the system?

Buterin cautioned about this: It sounds like a terrible, awful idea, to be honest. If ETH drops significantly, the value of the collateral would collapse, but CDOs (Collateralized Debt Positions) would not be liquidated, putting the whole system at risk of turning into a fractional reserve. »

To be followed closely !

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