How MakerDAO Intervened, Saving DAI From Depegging

Dalmas Ngetich

2 years ago

2 mins read

Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Created by industry experts and meticulously reviewed

The highest standards in reporting and publishing

How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio.

MakerDAO, the protocol behind the decentralized stablecoin DAI, intervened and saved its stablecoin from de-pegging following the collapse of Silicon Valley Bank (SVB).

The failure of the tech lender significantly affected Circle’s fiat-backed USDC. DAI fell to as low as $0.88 versus the dollar on March 11 before recovering to trade at $0.99 on March 13.

MakerDAO Implements Emergency Measures

Over the weekend, the Risk Core Unit of MakerDAO submitted an emergency proposal for an Executive Vote to limit MakerDAO’s exposure to “impaired” stablecoins and reinforce the DAI peg. The majority of the community backed the proposal, with 88,767 supporters in approval. Only 47 MKR holders were against this idea.

To address the uncertainty surrounding the centralized stablecoin market, the Risk Core Unit has submitted an emergency proposal for Executive Vote to limit Maker’s exposure to impaired stablecoins and reinforce the DAI peg.

→ https://t.co/Kjb0fSlZNX

1/ pic.twitter.com/LQRgHbDzYF

— Maker (@MakerDAO) March 11, 2023

The proposed changes include reducing the daily mint limit (gap) to 250 million DAI and increasing the USDC to DAI swap fee (tin) to 1% to discourage swapping USDC for DAI via the PSM. The PSM is a Maker Vault that maintains 100% collateralization and a 0% stability fee. Reducing the gap parameter from 950 million DAI to 250 million DAI will reduce daily minting limits to 250 million DAI.

Within 24 hours, 736 million DAI were minted through USDC using PSM, and the net supply for DAI increased by 296 million. The increase in the tin parameter prevents excessive dumping of USDC into the PSM, incentivizing users to dispose of USDC via other methods and ensuring it is only used if the DAI price significantly diverges upwards.

In the last 24 hours, a total net of 736 million DAI has been minted against USDC through the PSM.

→ https://t.co/brBzEorsc1 pic.twitter.com/LagDeVBKU0

— Maker (@MakerDAO) March 11, 2023

In addition to limiting Maker’s exposure to potentially impaired stablecoins, the proposed changes aim to maintain enough liquidity to prevent DAI from trading significantly above $1 if conditions change. It also ensures adequate market liquidity to process potential liquidations of crypto-collateralized vaults.

DAI Price On March 13| Source: DAIUSD On Coinbase, TradingView

Limiting Exposure To Protect DAI Peg

The proposed changes are not restricted to USDC. It would also affect the PSM-GUSD-A gap, which was reduced from 50 million to 10 million DAI to limit potential losses if Gemini faces contagion risk from its bank deposits.

On the other hand, with Paxos Dollar, USDP, the maximum debt ceiling line was increased to 1 billion from the current 450 million in PSM-USDP-A. Meanwhile, the PSM-USDP-A gap increased from 50 million to 250 million DAI. This proposal enables Paxos to provide necessary backstop liquidity to prevent DAI from trading over the $1 target price. Subsequently, this cushions against any impact on liquidation safety in the event of a crypto market crash like it did happen last week.

Feature Image From BainCapitalCrypto, Chart From TradingView

Dalmas Ngetich

Dalmas, a seasoned crypto reporter, brings a unique perspective to the industry. His specialization in NFTs, blockchain, DeFi, and blockchain news for NewsBTC, combined with a background in mechanical engineering and over a decade of experience in journalism, has allowed him to craft over 10,000 news and feature articles over the past eight years. His diverse range of topics, including technology, Forex, and finance, reflects his comprehensive understanding of the crypto landscape.

His technical expertise and analytical skills have been recognized and featured by leading news outlets such as Investing.com, CoinTelegraph, Entrepreneur, Forbes, and other authority sites. Notably, he broke key news, including the Ripple and MoneyGram partnership, cementing his position as a thought leader in crypto.
The news exploded. Over 100,000 people devoured this meticulously crafted report, from seasoned investors to curious newcomers. His analysis wasn't just dry facts and figures; it crackled with insight, dissecting the implications of the partnership and its potential impact on the future of finance.

His deep understanding of the financial markets, technological advancements, and blockchain developments has made him a respected voice in the industry.

Dalmas is also the founder of BTC-Pulse, a crypto news site, further demonstrating his commitment to the field. He firmly believes that DeFi and NFTs are here to stay and will continue to drive financial inclusion.

Coming from Nairobi, Kenya, it is easy to see the source of his inspiration: Across Africa, millions lack access to traditional banks. Remote villages, limited documentation, and high minimum balances create insurmountable barriers.

DeFi, not just Maker or Aave, for example, but think of Bitcoin and USDT, cuts out the middleman. Forget banks with their limitations.
Even so, DeFi isn't a magic solution. The continent still struggles with reliable internet access, and educational campaigns highlighting the benefits of this wonderful solution are insufficient. Moreover, even for those interested, understanding DeFi can look like learning a new language.

Dalmas is here to help make the tech easy to understand and digestible, even for beginners.
The story of DeFi in Africa is still being written. Challenges abound, but the promise of a more inclusive financial future is a powerful motivator. With innovation and collaboration, Dalmas firmly believes that DeFi could become the key to unlocking Africa's full economic potential.
This possibility and its immense value motivate Dalmas to continue breaking key DeFi innovations and more across the globe. His engineering background further enhances his ability to deliver well-thought-out pieces that blend technical insight with clear, impactful reporting.

Beyond his professional achievements, Dalmas is deeply passionate about technology and politics. Policies drive adoption, and being at the forefront and keeping up with how they evolve is crucial for the sphere to mature.

When Dalmas is not closely monitoring the latest crypto events, he can be found in nature, exploring the picturesque countryside, and traveling with his family and friends. His love for adventure and discovery perfectly complements his investigative and reporting skills.
You can connect with Dalmas on X: @Dalmas_Ngetich, or contact him on Telegram @Dalmas_Ngetich.

Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.