How MakerDAO Intervened, Saving DAI From Depegging

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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 tech lender’s failure significantly affected Circle’s fiat-backed USDC. Midwife fell It went as low as $0.88 against the dollar on March 11 before recovering to trade at $0.99 on March 13.

MakerDAO implements emergency measures

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Over the weekend, MakerDAO’s Risk Core Unit presented a emergency resolution for an executive vote to limit MakerDAO’s exposure to “impaired” stable coins and strengthen the DAI peg. The majority of the community supported the motion, with 88,767 supporters seconding it. Only 47 MKR holders were against the idea.

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 PSM . PSM is a Maker Vault that maintains 100% collateralization and 0% stability fees. Reducing the gap parameter from 950 million DAI to 250 million DAI will reduce the daily mining limit to 250 million DAI.

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Within 24 hours, 736 million DAI were minted via USDC using PSM, increasing the net supply for DAI by 296 million. The increase in the TIN parameter prevents excessive dumping of USDC into the PSM, encourages users to dispose of USDC through other means and ensures that it is only used when the DAI price is significantly above moves towards

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

DAI price on 13 March.  Source: Coinbase, DAIUSD on TradingView
DAI price on 13 March. Source: DAIUSD on Coinbase, TradingView

Limiting Risks to the Security of the DAI Peg

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

Paxos Dollar, on the other hand, with USDP, increased the maximum loan limit in PSM-USDP-A from the existing 450 million to 1 billion. Meanwhile, the difference in PSM-USDP-A increased from 50 million to 250 million DAI. The offer enables Paxos to provide the necessary backstop liquidity to prevent DAI from trading above the $1 target price. Subsequently, this liquidation cushions against any impact on the security in the event of a market crash, as happened last week.

Feature image from BankCapital Crypto, chart from TradingView

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