The DAI stablecoin's underlying DeFi technology, Maker, revealed that it had quadrupled the debt cap for its staked Ethereum (stETH) vault

The crypto lender wants to get away from centralized stablecoins while increasing the value of the collateral in its vault.

The DAI stablecoin's underlying DeFi technology, Maker, revealed that it had quadrupled the debt cap for its staked Ethereum (stETH) vault. Maker, the largest decentralized finance platform in the world, is attempting to lessen its reliance on centralized stablecoins like Centre's USD Coin (USDC), particularly in the wake of the Tornado Cash controversy that broke in the middle of August. Staked Ethereum is a cryptocurrency token that represents one Ethereum unit that has been deposited or locked up in advance of the network's impending upgrade, the merge.

Decentralized lending platforms offer loans directly to people and enterprises without the need of middlemen and pay interest to those who contribute cash. The staking token known as Staked Ethereum is given out as compensation to Ethereum lenders on websites like Lido Finance, Coinbase, Kraken, and Binance, among others.

Maker wants to reduce the weight of USDC and the percentage of DAI, the crypto lending service's own decentralized stablecoin pegged to the US dollar, that the token now holds as collateral. The protocol anticipates that by approving Maker DAO's governance proposal to increase the debt ceiling to $200 million, its dependency on USDC will be lessened.

The WSTETH-B vault, the pool into which customers can deposit collateral, currently has about 245,000 stETH provided, or about $392 million, according to data from DAI Stats.

A tornado's financial effects

In August, the US Treasury Department imposed sanctions on the cryptocurrency mixer Tornado Cash, making it illegal for Americans to use the protocol and related smart contracts.

38 wallets that were sanctioned in conjunction with the Tornado Cash prohibition were banned by Circle, a member of the Centre consortium. Privacy advocates condemned the action as business collaboration with overbearing and unfair government censorship.

In a statement, Circle founder Jeremy Allaire said, "We believe that abiding by the law and assisting in the prevention of money laundering is both right and our job as a regulated financial institution." We are aware that standing up for what is right put our belief in the importance of open source software on the Internet and our belief that the presumption and maintenance of privacy should be a guiding principle in the creation and use of dollar digital currencies at risk.

Lowering dependence

The parameter adjustment request made by Maker DAO on August 25 was strongly influenced by the developments involving Tornado Cash. The US OFAC agency's application of penalties on Tornado Cash smart contracts, according to its research of the loan market, "may signal rising risk for direct holdings of censorable assets like as USDC."

Concerns about USDC as a controlled asset in respect to Tornado Cash have grown in the crypto services. Despite recent changes, Maker's collateral ratio still primarily depends on USDC to support DAI. On August 11, Rune Christensen, the creator of MakerDAO, posted to the DAO's Discord, saying, "I think we should seriously explore preparing to depeg from USD."

The majority of MakerDAO's collateral would transition to a cryptocurrency without a locked value by converting the USDC to ETH, according to Christensen's "uprooting" method, which is known as the "yolo USDC into ETH approach". The percentage of collateral USDC makes up in Maker's pools will drop as a result of lenders depositing stETH in exchange for DAI. Although this move would deviate from USDC, given the market's turbulence, it could be harmful.

Because USDC is no longer a no-brainer, Christensen continued, "the market may eventually start to reward decentralization to the point where risks are acceptable." Other analysts such as Erik Voorhees, founder of ShapeShift, have addressed Maker calling for the protocol to begin “unwinding your USDC collateral immediately, converting it into stables that are more censorship resistant.”

Multiple shifts

In July, Maker DAO lowered its WSTETH-B stability cost to 0% in order to encourage users to add more collateral to the pool. As soon as the proposal was made, the amount of provided collateral rose to almost the vault's previous debt cap of $100 million. The endeavor to lower the ratio of collateral USDC holds against Maker's native stablecoin compared to other assets is furthered by doubling the debt ceiling, which provides incentives for users to deposit more stETH into the vault as collateral against DAI.

Less USDC should be used on the Maker network, according to ongoing news about Tornado Cash and Circle's wallet blacklisting. The use of stETH by Maker is their most recent effort to unwind their USDC collateral.


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