The governance of MakerDAO recently approved of the USD Coin (USDC) stable coin as the third collateral type accepted in the Maker Protocol.
Following last week’s market instability, the decision became a priority having been put to an executive vote outside of the week’s usual schedule. This was aimed at increasing Dai liquidity.
USDC is now set to join already existing acceptable forms of collateral such as Basic Attention Token (BAT) and Ether (ETH) which can be used to open and generate Dai.
This has sparked conversations within the community as well as the public on the merits of adding USDC, the potential impact of adding a centralized stable coin as a collateral type and appropriate risk parameters for the token. As a matter of finality, the community believes that the decision to add USDC as collateral is positive as it hopes that it would address the instability and liquidity issues that has been rife since the market crash last week Thursday.
Dai is generated by locking collateral such as Ether (ETH) and Basic Attention Token (BAT) in a vault. This is permissible by the Maker Protocol.
The unforeseen drop in the price of Ether last week, resulted in the collateral value in many vaults to drop below the Dai generated which created a frenzy in the market.
Although the Maker Protocol has mechanisms in place for incidences like this, the rate of the sell-off in the system rendered these mechanisms ineffective. In some cases, liquidated collateral was auctioned off for as low as 0 Dai and after consuming all the Dai in the buffer, the eventual debt was to the tune of $4 million.
As reported by newsmen, the Maker governance proposed the addition of USDC as a collateral type. This decision was informed by the very nature of the stable coin which is not exposed to market instability. The Maker governance has also, in addition to other mechanisms, implemented a collateral liquidation freeze mechanism. This is to act as a potential circuit breaker in the instance of an unforeseen eventuality.