MakerDAO Commits to USDC Despite Depegging Issue
MakerDAO, the governance community of the popular DeFi lending platform Maker, has chosen to continue using USD coin (USDC) as the primary reserve asset for the DAI stablecoin. This decision comes despite USDC experiencing a temporary depeg earlier this month, causing concerns among investors.
USDC Depegged Following the Collapse of SVB
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 around $3.3 billion of the USDC reserves were stuck with SVB, leading to panic among investors.
Although Circle provided assurances that the company would cover any 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.
MakerDAO Rejects Plan to Diversify From USDC
In response to the depegging event, MakerDAO reviewed its DAI reserves, which were all stored in USDC. DAI is considered vital to the multi-collateral lending operation of the Maker, and it 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.
In a poll on March 20, the MakerDAO strongly rejected the proposal, with 79.02% voting to “Maintain USDC as the Primary Reserve” as opposed to 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 total value locked (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. Ethereum (ETH), Binance Coin (BNB), and Polygon (MATIC) have all suffered losses to the tune of 1.8%, 4.0%, and 9.9%, respectively, 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. Ripple (XRP), for example, 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.
Conclusion
MakerDAO’s decision to stick with USDC as its primary reserve asset for the DAI stablecoin despite the depegging issue earlier this month shows a strong commitment to maintaining investors’ trust. While it is understandable that the Risk Core Unit proposed diversification to avoid similar events in the future, the overwhelming decision to maintain USDC as the primary reserve shows that confidence in the stablecoin remains high.
The overall bearish nature of the crypto market could be attributed to various factors such as regulatory troubles, environmental concerns, and market corrections. Nevertheless, some tokens managed to pull off remarkable gains, signaling that the market still holds opportunities for investors.
