Analysts are concerned that the decision could set the DeFi protocol on the path to centralization.
MakerDAO (MKR) plans to deposit $1.6 billion in USDC into Coinbase Prime, for a return of 1.5% per year. There are three days left for the closing of a survey on the proposal. The decision could set the DeFi protocol on the path to centralization.
“If this proposal passes, there will be no going back for MakerDAO,” tweeted Chris Blec, DeFi expert and Maker delegate. Blec is concerned that the protocol is “being completely captured by Coinbase.”
“Ultimately, he will have to capitulate to the government’s demands or be destroyed by his captor. Ethereum decentralization is dying before our eyes,” Blec lamented.
He tweeted that, “$DAI is 6 days away from being entirely captured by @coinbase. If this proposal passes, there will be no turning back for @MakerDAO. It will have to ultimately capitulate to govt demands or be destroyed by its captor.” Decentralization on Ethereum is dying before our eyes.”
MakerDAO – Coinbase Proposal: 88% Community Support
MakerDAO members are voting on a series of landmark proposals that, if passed, will completely change the protocol. Voting has been underway since October 10 and is expected to end on October 24.
One of the proposals being voted on involves the transfer of around $1.6 billion in USDC to the US exchange Coinbase Prime, for an annual return of 1.5%. The amount represents a third of the USDC used to back MakerDAO’s DAI stablecoin.
The proposal has so far garnered 88% community support. With only three days left before the poll closes, and only 0.05% of the “no” vote, it seems likely that the proposal will pass. It was led by MakerDAO’s Strategic Finance and Growth core units.
Notably, MakerDAO is an Ethereum-based crypto lending platform, and its protocol has over $7.59 billion in total value locked (TVL). MakerDAO is arguably the most influential in DeFi, allowing users to mint DAI, its so-called overcollateralized stablecoin.
Users looking to hold the token need to provide assets from a variety of crypto assets on the MakerDAO protocol as collateral. This helps keep DAI’s hook on the dollar.
Unlike Tether’s USDT or Circle’s USDC, DAI offers an unprecedented degree of decentralization, due to the lack of a central authority controlling its issuance.
Concerns about Centralized Services
Observers are concerned about Maker’s relationship with Coinbase, a centralized exchange prone to government and corporate whims. In August, Centre, the consortium behind USDC, blacklisted 38 wallets, while freezing the $75,000 they held after the sanctions.
The consortium, created by Circle and Coinbase, has now banned 81 wallet addresses since USDC launched in September 2018. The blacklisting of Tornado Cash wallets put DAI decentralization in focus.
DAI to the dollar is maintained by the Peg Stability Module. This allows users to trade stablecoins like USDC one-for-one in exchange for DAI.
But should not it matter that MakerDAO is betting on USDC with Coinbase? The protocol already contains a large amount of the stablecoin. According to Daistats, DAI is 40% backed by USDC. That equates to $3.4 billion. It is the largest collateral asset that supports DAI.
However, this is not necessarily so. “For MakerDAO keeping USDC itself trustless means Maker can move it, sell it, transfer it, etc. without asking permission first,” explained Chris Blec, the MakerDAO delegate, on Twitter.
“Coinbase holding Maker’s USDC means that Maker cannot do anything without asking Coinbase for permission.”
By Audy Castaneda
