MakerDAO (MKR) is planning to deposit $1.6 billion in USDC on Coinbase Prime to earn a yield of 1.5% per annum. Voting on the motion is three days away from closing. Decision may set the DeFi protocol on the path of centralization.
“If this resolution is passed, there will be no return for MakerDAO,” said Chris Blake, DeFi expert and a representative for Maker, tweeted, Blec worries that the protocol has been “completely taken over by Coinbase.”
“It will eventually have to bow to the demands of the government or be destroyed by its captives. Decentralization on Ethereum is dying before our eyes,” lamented Blake.
MakerDAO members are voting on a series of landmark proposals that, if approved, would completely change the protocol. Voting has been going on since October 10 and is expected to end on October 24.
One of the proposals being voted on involves the transfer of approximately $1.6 billion in USD Coins, or USDC, to US exchange Coinbase Prime to earn an annual yield of 1.5%. This amount represents a third of the USDC used to back the DAI stablecoin of MakerDAO.
At the time of writing, the proposal has received 88% support from the community. With only three days before voting closes, and with only 0.05% voting “no”, it looks like the resolution will pass. The proposal was led by the Strategic Finance and Growth Core Unit of MakerDAO.
MakerDAO is a crypto lending platform built on Ethereum. The protocol has over $7.59 billion in Total Value Locked (TVL) and is arguably the most influential of DeFi. Maker allows users to hedge DAI, its so-called hypercollateralized stablecoin.
Users wishing to hold the token are required to provide assets from a range of crypto assets as collateral in the MakerDAO protocol. This helps keep the DAI pegged against the dollar.
Unlike Tether’s USDT or Circle’s USDC, both are controlled from a central point. DAI offers an unprecedented degree of decentralization due to the lack of a central authority controlling its issuance.
Concerns about centralized services
Observers are concerned about Maker’s relationship with Coinbase, a centralized exchange prone to government and corporate cynicism. In August, Kendra, the consortium behind USDC, blacklisted 38 wallets. He complied with the sanctions, freezing $75,000.
The consortium established by Circle and Coinbase has now banned 81 wallet addresses since the launch of USDC in September 2018. The blacklisting of the Tornado Cash wallet has focused on the decentralization of DAI.
The pegging of the DAI against the dollar is maintained by the stability module. It allows users to exchange stable coins such as USDC in exchange for DAI on a one-to-one basis.
But does it matter that MakerDAO is betting USDC with Coinbase? The protocol already has a large amount of stablecoins. According to Daistats, DAI is backed by 40% USDC. This equates to $3.4 billion. It is the single largest collateralized asset backing DAI.
Not necessarily. “MakerDAO incredibly holding USDC means creators can move it, sell it, move it, etc.,” said Chris Blake, MakerDAO representative. Explained on Twitter.
“Coinbase holding Maker’s USDC means Maker cannot do anything without permission from Coinbase.”
MakerDAO co-founder Rune Christensen is concerned about the risk of infection with the US Treasury Department’s approval of Tornado Cash. He offered to sell up to $3.5 billion in USDC for Ethereum, putting the DAI peg at risk.
“It’s obviously suicide to ‘yolo,’ but the risk/reward of being partially uprooted may be acceptable,” Christensen said in August.
“Markets may eventually start rewarding decentralization to the point where these risks are acceptable because USDC is no longer a no-brainer.”
plan received comprehensive criticism, including Ethereum co-founder Vitalik Buterin. It is unclear whether the proposal was ever put up for a community vote.
Earlier in May, Christensen published Endgame, a roadmap detailing his plans for restructuring MakerDAO.
Many of the proposals being voted up for today are based on Christensen’s preferred approach to the protocol. The founders have spoken out against MakerDAO’s decentralized governance model since the dissolution of the Maker Foundation in 2021.
He criticized the lack of interest from community members to vote on key protocol proposals as a major factor limiting Maker’s ability to manage difficult financial agreements. Therefore, he proposed to split Maker into several units called “MetaDAO”.
Each metadao will have its own token. It will be managed by a committee that is different from Maker’s broad-based governance system. The new structure is designed to neutralize the impact of divergent competing interests within the MakerDAO community.
In his endgame roadmap, Christensen said:
“The governance processes and political dynamics that evolve in Maker are fundamentally not compatible with the reality of effectively processing complex real-world financial deals.”
massive community support
Members are voting on proposals to separate MakerDAO’s real world finance core unit. Events Core Unit, and Strategic Happiness Core Unit. The proposals have received 100%, 85% and 92% community support, respectively.
Christensen’s proposal has received overwhelming support from the MakerDAO community. Its nexus with centralized institutions like Coinbase has raised eyebrows.
“The end (of decentralization) game is voted collectively by 1 party (through all its controlling representatives),” said Lucas Prosperi, DeFi researcher and lending oversight at MakerDAO. tweeted,
“Now that liquidity has left us, the DAO experiment says farewell to a spectacle @MakerDAO It’s fun and games, until it’s fun and games – your duty is to keep watching.”
Similarly, the community is voting on a proposal from Gemini. Offers to pay MakerDAO a 1.25% yield if it agrees to hold $100 million worth of the exchange’s GUSD stablecoin.
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