MakerDAO to adjust protocol parameters to limit USDC problems’ impact on DAI

As part of an ’emergency vote’, the MakerDAO community approved a proposal related to adjusting the protocol parameters. The changes are intended to limit the impact of USD Coin (USDC) issues on the decentralized stablecoin DAI.

Maker Governance has enacted a set of parameter changes through the latest emergency vote to reinforce the DAI peg.

Submitted parameter changes are scheduled for deployment in 48 hours, on March 13th at 16:14 UTC. https://t.co/JDHXrDDsih

— Maker (@MakerDAO) March 11, 2023

The proposal published on March 11 proposal proposes reducing the maximum amount of DAI that can be borrowed against a given collateral. The parameter changes would also cap the daily issuance of the stablecoin at 250 million (the current limit is 950 million) and raise the minting fee for assets against USDC from 0% to 1%.

MakerDAO believes the measures will prevent an excessive dump of USDC into the PSM and reduce risks for other DeFi protocols that interact with DAI. At the same time, the liquidation mechanism that maintains the stablecoin’s parity with the US dollar will continue to function normally.

It is planned that the changes will take effect on March 13 at 18:14 Kyiv time (19:14 MSK).

According to DaiStats, the share of USDC in DAI collateral exceeds 54%. At the same time, more than $4 billion USDC are placed in the PSM, according to Block Analytica. Since the depeg of the stablecoin from Centre, the latter figure has risen by 117%.

On Friday, March 10, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (SVB) and appointed the FDIC as receiver.

The next day, Circle, part of the Centre consortium, announced that it holds part of the USDC reserves at SVB ($3.3 billion). Against this backdrop, the stablecoin lost its peg to the US dollar.

Due to the USDC depeg, parity to the dollar was lost by algorithmic stablecoins, which allowed using the asset as collateral for issuance. In particular, the price of DAI hit an all-time low around $0.88.

As of writing, asset quotes have somewhat recovered. According to CoinGecko, DAI trades near $0.95.

Circle had promised to use corporate funds and ‘external capital’ to support USDC if the companies fail to timely and fully return the assets held in SVB accounts.