MakerDAO Co-founder Recommends DAI-USD Depegging: 'No Option But To Prepare To Free Float Dai'

MakerDAO co-founder Rune Christensen has reached out to the community in light of recent conversations of decoupling its native token from USD Coin USDC/USD amid the sanctioning of Tornado Cash to explain why free-floating Dai DAI/USD may be the only option for the decentralized autonomous organization (DAO).

Christensen acknowledged underestimating the hazards associated with risk-weighted assets in his blog post titled "The Path of Compliance and the Path of Decentralization: Why Maker has no option but to Prepare to Free Float Dai." 

Physical crackdowns can be sudden

“Physical crackdown against crypto can occur with no advance notice and with no possibility of recovery even for legitimate, innocent users. This violates two core assumptions that we used to understand RWA [risk-weighted asset] risk, making the authoritarian threat a lot more serious,” Christensen said.

Christensen stated that the protocol must choose the route of decentralization, which was always the idea and the objective of Dai, as he admitted that the protocol was unable to abide by the regulators.

The only option left, he continued, was to limit the attack surface by reducing RWA exposure to a maximum fixed percentage of the total collateral, which necessitated free floating away from USD.

He believes that decentralizing Maker would lessen the impact of crackdowns on the overall protocol.

Notably, according to statistics from daistats, over 50% of DAI is now collateralized by USDC.

Huntingdon Valley Bank Receives $100 million DAI Loan from MakerDAO

Meanwhile, through a collaboration with Huntingdon Valley Bank (HVB), a local bank in Philadelphia, MakerDAO has formally linked DAI to conventional finance.

The protocol officially offered HVB 100 million DAI, making it the "first commercial loan participation between the US Regulated Financial Institution and a decentralized digital currency," according to the protocol's announcement.

In March, when it formally submitted an onboarding application to MakerDAO, HVB requested DAI's assistance in fostering the expansion of current enterprises and investments.

In exchange, MakerDAO will be able to use HVB's bond managers to produce income on its DAI holdings and diversify its counterparty risks.

With the first transaction opening up half of the overall facility, the initial loan has a maximum value of $100 million.

Over the upcoming 12 months, HVB has the authority to ask for further funding.

Shortly after Terra and its algorithmic stablecoin UST collapsed, MakerDAO officially added HVB as a new stablecoin vault type in July with a vote that received 87% support.