DeFi
Main DeFi lending platform MakerDAO has proposed an ‘Endgame Plan’ to make the protocol extra resilient, nevertheless it might severely influence its stablecoin and liquidity swimming pools.
In late August, MakerDAO co-founder Rune Christensen proposed what he termed an ‘Endgame Plan’ to make the community extra resilient to regulatory strain.
The transfer was largely in response to the U.S. Treasury Division’s transfer to sanction Ethereum mixing service Twister Money. There have emerged two major paths for the way forward for crypto networks, in keeping with Christensen: the trail of compliance or the trail of decentralization.
He needs to take MakerDAO down the trail of resilience and decentralization, nevertheless it might have a significant influence on the DAI stablecoin and DeFi protocols which are closely reliant on it, similar to Curve Finance.
Three MakerDAO Endgame methods
The Endgame Plan proposes making DAI a free-floating asset, initially collateralized by real-world belongings (RWA). There will probably be a three-year interval when DAI stays pegged to the greenback, throughout which the protocol doubles down on RWA to build up as a lot ETH as doable. This will increase the ratio of decentralized collateral.
The plan proposes three completely different collateral methods known as Stances. These vary from excessive publicity to RWA to zero publicity. Extra publicity allows sooner progress however on the expense of resilience, and the Phoenix Stance, which is the endgame, has no RWA publicity, is very resilient, and sees DAI transferring away from its USD peg to turn into free floating.
Supply: discussion board.makerdao.com
The protocol can be put into the Pigeon Stance initially to build up ETH to make DAI resilient to authoritarian threats towards the RWA collateral. It’s going to then transfer right into a transition section known as the Eagle Stance after it reaches 75% decentralized collateral from ETH accumulation. Lastly is the Phoenix Stage with no seizable RWA collateral.
Primarily, Christensen needs to maneuver the protocol away from being collateralized by centralized belongings similar to USDC and to a extra decentralized mannequin which is resilient to third-party threats. It’s a difficult steadiness, and the evolution of DAI might have another impacts elsewhere within the trade.
The Curve impact
Curve Finance makes use of DAI and different stablecoins to generate DeFi yield alternatives. Considered one of its hottest farms is 3pool which is a excessive liquidity pool for environment friendly stablecoin buying and selling and arbitrage. It will be closely impacted by a free-floating DAI.
On Oct. 3, Crypto Danger Assessments reported {that a} drop in DAI value might end in merchants utilizing 3pool to exit DAI positions leading to a buildup of the asset within the pool. Arbitrage bots might additionally reap the benefits of the scenario between the three stablecoins within the pool (USDT, USDC, and DAI), draining the previous two so the third accumulates.
The Curve 3pool might must be restructured if DAI ultimately turns into free-floating. There’s at present $861 million within the pool break up evenly between the three stablecoins. It has simply over $40 million in every day quantity.