MakerDAO seeks to reduce volatility after USDC issues moved some users to DAI
From March 10, the supply of USDC decreased by 5% while the supply of DAI soared, jumping from 5.1 billion to 6.3 billion.
As customers migrated away from USDC due to worries about Circle’s connection to the bankrupt Silicon Valley Bank, MakerDAO, which maintains the “decentralized” dai stablecoin, filed an emergency proposal to limit the amount of DAI that may be created alongside other centralized stablecoins.
Circle announced on Friday that $3.3 billion of its $40 billion in reserves remained in Silicon Valley Bank, which was shut down by authorities last week. Its USDC stablecoin dropped to $0.87 from its planned dollar peg, prompting a large outflow that boosted demand for DAI.
The supply of USDC decreased by 5%, from 41 billion on March 10 when SVB was closed to 38.6 billion on March 13. According to on-chain statistics compiled by The Block, the supply of DAI increased to 6,3 billion on March 13 from 5,1 billion over the same time.
Most of the increase in DAI supply may be linked to USDC holders minting additional DAI since USDC is one of the most popular assets MakerDAO users can use as collateral to mint DAI at a 1:1 ratio using a Peg Stability Module (PSM). According to statistics from DeFi Llama, USDC presently accounts for more than fifty percent of DAI’s collateral reserves, among other cryptocurrencies and real-world assets.
As USDC briefly lost its peg, the Peg Stability Module (PSM) adoption increased, and investors rushed to manufacture DAI, presumably to diversify their stablecoin holdings. Experts believe that USDC investors would have sought to abandon ship over the weekend market panic, with DAI’s broad portfolio of assets supporting its stablecoin seen as a safer option to USDC.
“With the initial lack of clarity about how much money was trapped on SVB and the following depegging, it is probable that USDC investors sought to exit their holdings,” stated Rebecca Stevens, a research analyst at The Block.
Despite the stablecoin market’s volatility, USDC and DAI are now pegged to the dollar. Investors’ anxieties were allayed when the U.S. government guaranteed that all SVB depositors would be fully refunded.
MakerDAO’s suggested solution is an emergency switch that would decrease the quantity of DAI produced through Peg Stability Module (PSM) exchanges and protect DAI from USDC price swings.
Also Read: Binance Will Soon Stop Using Its British Pound On- And Off-Ramp Provider