Coindesk reports, that a recent decision that has significant implications for both MakerDAO and Paxos, the MakerDAO community has unanimously voted to eliminate $500 million worth of Paxos Dollar (USDP) stablecoin from its reserves. This move will directly affect half of the total USDP supply and poses challenges for Paxos, as MakerDAO’s treasury currently holds approximately 50% of the $1 billion USDP circulating in the market. This decision follows regulatory actions taken against Paxos earlier this year, further impacting the market capitalization of its stablecoin, Binance USD (BUSD).
Decreasing Debt Ceiling for USDP:
The MakerDAO community’s vote to decrease the debt ceiling for USDP from $500 million to zero reflects its intention to optimize capital efficiency. With this decision, MakerDAO aims to boost its revenues by exploring alternative strategies for investing its reserves in yield-generating avenues. The proposal argued that holding USDP does not generate revenues for MakerDAO, thereby affecting its overall capital efficiency. This move is particularly significant as MakerDAO plans to increase the rewards rate for its own stablecoin, DAI.
Paxos, the issuer of USDP, faces a substantial setback due to this decision. MakerDAO’s treasury currently holds a significant portion of the total USDP supply, leaving Paxos with reduced liquidity and potentially impacting the stability of the stablecoin. Earlier this year, New York state regulators compelled Paxos to halt minting Binance USD (BUSD), another stablecoin under its purview. Since then, the market capitalization of BUSD has significantly declined from $16 billion to $5 billion, as per CoinGecko data.
MakerDAO aims to enhance its revenues by adopting new strategies. The protocol has partnered with Gemini, the issuer of GUSD stablecoin, which offers an incentive to MakerDAO for holding its stablecoin. Additionally, MakerDAO is set to earn a 2.6% yield on up to $500 million of USDC from Coinbase Prime. The protocol is also diversifying its investments by venturing into real-world assets (RWA), such as tokenized short-term U.S. Treasury bonds through investment management firms.
Although Paxos has suggested the implementation of a marketing fee scheme, no concrete progress has been made thus far. If marketing payments are eventually implemented, MakerDAO will have the opportunity to increase USDP debt ceilings accordingly. This possibility remains open, but for the time being, MakerDAO’s decision to remove USDP from its reserves stands as a significant move towards optimizing its capital efficiency and exploring alternative revenue-generating avenues.
The MakerDAO community’s unanimous decision to eliminate $500 million USDP from its reserves has far-reaching implications for both MakerDAO and Paxos. As MakerDAO aims to boost its revenues, it plans to explore alternative investment strategies, including partnerships with other stablecoin issuers and investments in real-world assets. Meanwhile, Paxos faces the challenge of reduced liquidity and the need to address marketing fee schemes to potentially regain MakerDAO’s trust and increase USDP debt ceilings in the future. The outcome of these developments will significantly impact the stablecoin landscape in the decentralized finance (DeFi) ecosystem.