Recently, Circle suspended USDC tokens belonging to 38 wallet addresses which were blacklisted by the US Treasury Department. These wallets were of Tornado Cash addresses.
Following this, MakerDAO has raised concerns about risks related to USDC. MakerDAO founder Rune Chirstensen has asked community members to be prepared to withdraw the DAI stablecoin from the US dollar via the company’s Discord channel.
After the Office of Foreign Assets Control (OFAC) restricted residents from using Tornado Cash, Circle decided to freeze $75,000 worth of stablecoins. Following this, Rune claimed that these restrictions by OFAC are serious and MakerDAO should start preparing to depeg from USD.
Will the entirety of USDC be converted into ETH?
It is interesting to note that Rune plans to convert the above mentioned USDC to ETH. At the moment, USDC holds more than 50% of the collateral for MakerDAO’s DAI stablecoin. Therefore, the founders are very concerned about the reliance on a single stablecoin and a centralized asset.
DAI’s market cap that stands at $7.5 billion, makes the currency one of the largest DeFi protocols by total value locked.
@bantg, a chief engineer at Yearn.finance, tweeted that MakerDAO may propose to convert all of its $3.5 billion USDC into ETH. As a result, more than 50% of the DAI stablecoin will be secured by ETH, which is currently rising by 7%.
The community is comparing this move to the Terra (LUNA) collapse and saying that this another “Terra in the making”. This is because the Terra network had made a similar mistake of backing all its USDT tokens with Bitcoin. After USDT underwent a huge depegging, Terra was forced to liquidate all its BTC reserves.
Other people have also made their point.
Ethereum co-founder Vitalik Buterin also believes this would be a risky approach. Vitalik says that if Ethereum drops in its value, the collateral value will also drop. Therefore, the overall system will be affected, making it a fractional reserve.
In reply to Vitalik’s comment, Rune Chirstensen replied that they don’t have any plan to transfer all of USDC into ETH and only might transfer a few.
