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

Higher inflation would reduce the real value of outstanding government debt while increasing tax revenues.

Amid the IMF’s negative predictions for Spain’s economic growth in 2022 and 2023, coupled with constant and persistent inflation, there could be an unnoticed variable that brings with it a reduction in debt in conjunction with higher tax collection.

Paradoxically, the answer lies in inflation itself. Spain has projected the largest increase in nominal GDP so far this century, and all thanks to the cumbersome imbalance in the volume of prices.

In other words, the Nominal GDP is the reflection of the volume of prices, and therefore of the inflation rate. Higher inflation reduces the real value of outstanding government debt while increasing the tax burden on capital investment, due to the lack of inflation indexation. That is why the increase in nominal GDP would help reduce Spain’s foreign debt.

Inflation Trend in Spain

It is worth remembering that inflation refers to the increase in the price of goods and services, and this is directly proportional to the decrease that a currency sees in its purchasing power. While there are three types of inflation, they all lead to a gradual increase in prices over time. The three types are demand inflation, cost inflation, and core inflation.

Inflation, like all economic indicators, has its “silver side” – at least for governments and economic policymakers. In addition to reducing the country’s debt, governments generally agree that inflation increases tax revenues, which, like VAT, are set as an additional percentage of the price.

This trend could gain more and more strength in Spain, a country where its real GDP growth is declining, while the nominal GDP is not, which is experiencing unparalleled progress in more than two decades. In fact, the effect seems to have begun, since inflation has already reduced the Spanish debt by 9% of GDP, from 125% to 116% of GDP.

Largest Increases in Nominal GDP over Time

According to the analysis of the newspaper El Economista, the 4.4 points of real growth could be added up to 4 points or more of the GDP deflator (a much broader price indicator than the CPI), according to the new government ‘macro’ table.

This scenario would give rise to a nominal growth close to 8.5%, a variation rate not seen since 2000. That year, the real economy expanded by 5.2%, while the GDP deflator was 3.5%.

The hitherto hypothetical inflationary spiral would continue until 2024, causing recession and even havoc in some productive sectors. This would translate into a decrease in the real disposable income of Spanish households. In a context in which inflation does not seem to subside despite the constant rises in interest rates, nominal GDP is expected to reach its apex in the following quarters.

The real and most important question would be whether this would actually bring any benefits, given that inflation not only wreaks havoc on those with lower income levels but could also unleash an inflationary spiral that further damages production and the purchasing power of the general population.

In short, inflation, if well managed, need not be a bad thing. Citizens have many options to protect themselves against this event, through stocks, precious metals, or other investments, such as cryptocurrencies. It is a matter of researching well how to protect yourself from inflation.

By Audy Castaneda