DAI wants to get rid of USDC after Circle freezes Tornado Cash funds

MakerDAO, the organization behind the DAI decentralized stablecoin, is considering selling all of its USD Coin (USDC) reserves, which today amount to approximately $3.5 billion, or 49 % reserves.

MakerDAO wants to get rid of reserves for stablecoin DAI in USDC

The proposal comes shortly after USDC issuer Circle froze more than 75,000 USDC in funds at 44 addresses that interacted with Tornado Cash, a US-banned cryptocurrency mixer.

However, experts warn that a change in DAI reserves could cause the stablecoin to lose its 1:1 parity with the US dollar.

According to MakerDAO founder Rune Christensen, the Circle action is a form of censorship. And that scared the organization enough to look for solutions that didn't depend on Circle's decisions. One option would be to sell all the USDC that DAI is holding as collateral.

Christensen sees this possibility as "inevitable", although there is a chance that it will have a direct impact on the price of DAI. According to him, this is a risk that the community must take in order not to depend on corporate shares.

However, in order to put the proposal into practice, it is necessary that the Decentralized Autonomous Organization (DAO) votes and approves it. This means that MKR token holders will decide whether Maker replaces their USDC reserves.

However, as noted by Mariano Conti, who worked with MakerDAO, the majority of MKR is owned by the founders of the platform. This means protocol management is centralized, which can result in a decision the community doesn't like.

“They decentralized the platform but centralized the management,” he noted.

While the initiative has legitimate motivations, it could cause the DAI stablecoin price to collapse and lose parity with the dollar.

ETH for USDC? Buterin says this is a bad idea

The developer known as @banteg said on his Twitter account that MakerDAO will consider converting all of its USDC to Ethereum (ETH), which he said would mean a purchase of around $3.5 billion.

In reaction to tweet Vitalik Buterin, co-founder of ETH, said it was a "risky and terrible idea":

“That seems like a risky and terrible idea to me. If ETH falls too much, the value of the collateral would decrease, but the CDPs (collateralized debt positions) would not be liquidated. Then the whole system would risk becoming partial reserve,” he said.

After that, Buterin stated that he thinks that in any type of hedging, the amount of ETH should exceed 20 % of the total. “Maybe 20 % at the most anyway,” he said. It is worth noting that today, of the total DAI collateral, only 7.4 % is in ETH.

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