Maker, the issuer of DAI stablecoin, has nearly doubled the limit on its staked Ethereum vault. The DeFi protocol is planning to stop its dependence on centralized stablecoin like USDC. The recent Tornado Cash scandal has fueled the plan.
Staked Ethereum represents one unit of ETH that has been locked up or deposited in expectation of the long-awaited merge. In addition, Ethereum lenders on Staking services such as Binance receive rewards in staked Ethereum.
Maker is working to reduce the proportion USDC holds as collateral to DAI, which is Maker’s decentralized stablecoin pegged to USD. With the approval of the governance proposal to double the debt ceiling of staked Ethereum to about $200, Maker now expects to witness more of the Staked Ethereum deposited against DAI instead of USDC.
Tornado Cash Ban Pushes Maker to Limit USDC Usage
Recently, the United States Treasury Department banned mixer Tornado Cash. It is now illegal for any American to use the protocol and associated smart contracts. Circle, the issuer of USDC, backlisted over 37 wallets connected to Tornado Cash. Jeremy Allaire, the Circle founder, supported the move claiming it was their obligation to help stop money laundering.
After the Tornado Cash scandal, Maker analyzed the lending market and reported that the sanctions imposed on Tornado Cash and associated smart contracts by the United States Office of Foreign Asset Control could signal increased risk in USDC usage.
MakerDAO Prepares to Abandon USDC.
Despite recent issues surrounding USDC with Tornado Cash, Maker’s collateral ratio relies significantly on USDC to back DAI. However, a few days ago, Rune Christensen, the MakerDao founder, posted on Dao Discord about the company’s preparations to de-peg from USD.
Christensen stated that by converting USDC TO ETH, a considerable percentage of MakerDAO’s collateral would turn to crypto with no locked value. He added that lenders depositing staked Ethereum in exchange for DAI reduce the significant ratio of collateral USDC in the Maker’s Vaults.
In July, MakerDao began initiatives to urge its users to deposit more collateral into the pool by reducing its WSTETH-B stability fee to zero. The move saw increased collateral deposits and almost hit the previous debt ceiling of $100M. In addition, the recent step to double the debt ceiling fuels the efforts to reduce USDC reliance and increases the adoption of collateral DAI.