The decentralized finance project Makerdao has issued an emergency proposal to address the $3.1 billion in USDC collateral that backs a portion of the project’s stablecoin, DAI. This comes after the recent depegging incident that saw the stablecoin dip down to $0.877 per unit.
USDC is presently changing hands for $0.91 per coin, and the stablecoin’s instability has caused Makerdao to take action. The emergency proposal aims to limit Makerdao’s exposure to potentially impaired stablecoins and other risky collateral while maintaining enough liquidity to prevent DAI from trading significantly above $1 if conditions change. Makerdao is encouraging all voters to review and support the proposals as soon as possible.
The news comes as Circle Financial revealed that it had funds stuck at the financial institution Silicon Valley Bank (SVB). This led to the firm’s stablecoin, USDC, breaking its $1 parity, which affected five other stablecoin assets. Makerdao’s DAI stablecoin is down to $0.92 per coin, and the stablecoin slipped to a 24-hour low at $0.881 per DAI.
The proposal explains that the collaterals “are exposed to potential USDC tail risk.” Additionally, Makerdao says the “proposal(s) implementing the above changes are expected to be posted in the next ~12 hours or less.”
The Makerdao project uses a complex system of smart contracts to allow users to create the DAI stablecoin by locking up other cryptocurrencies as collateral. The project’s goal is to create a decentralized stablecoin that maintains its value without relying on a central authority.
This isn’t the first time Makerdao has had issues with DAI’s collateral backing. Three years ago, during the March 12 “Black Thursday” event, the depleting price of ethereum (ETH) strained the stablecoin project. Estimates indicate that roughly $4 million worth of the stablecoin DAI was left underwater due to an auction failure.
The Makerdao community is hoping that the emergency proposal will be successful in addressing the current issues with USDC and stabilizing the DAI stablecoin. The proposal will be subject to a vote by the Makerdao community, and if approved, the changes will be implemented in the coming days.