MakerDAO Withdraws 250 Million USDC from Coinbase Custody to Support DAI Peg

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Web3 Station

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MakerDAO Withdraws 250 Million USDC from Coinbase Custody to Support DAI Peg

Overview:
MakerDAO has taken a decisive step to support the stability of its decentralized stablecoin, DAI, by withdrawing 250 million USDC from Coinbase Custody. This move aims to bolster the Peg Stability Module (PSM) and ensure DAI maintains its peg to the US dollar.

The Situation

USDC Reserves Depletion:

  • The reserve of USDC for DAI had dropped to a critical level of 60 million USD, far below the minimum required threshold of 200 million USD.
  • In response, MakerDAO decided to move 250 million USDC from its 500 million USD custody at Coinbase to the PSM.

Function of the PSM:

  • The Peg Stability Module allows users to exchange USDC for DAI on a 1:1 basis, which helps maintain DAI's peg to the USD.
  • If the PSM runs out of liquidity, there is a risk that DAI could lose its peg (depeg), destabilizing the stablecoin's value.

Community Response and Actions

Concerns and Immediate Measures:

  • A MakerDAO governance contributor, PaperImperium from GFX Labs, emphasized the urgency of the situation. He warned that a worst-case scenario could see DAI depegging within minutes or hours.
  • The community noticed the PSM reserve dropping below 300 million USD over the weekend.

Calls for Action:

  • Allan Pedersen, CEO of the lending platform Monetalis, repeatedly called for SHRM, the custody management unit, to expedite the transfer of funds into the PSM.
  • Before the infusion from Coinbase Custody, over 100 million USD was kept in the PSM's liquidity pool from October 29 to October 31.

Future Steps and Improvements

Automation Plans:

  • Pedersen mentioned that the team is working on automating the PSM through smart contract integration.
  • Currently, the liquidity transfers rely on trustees, fund managers, legal entities, and centralized exchanges.

Monitoring and Stability:

  • The MakerDAO community and contributors remain vigilant, monitoring the flow of USDC from Coinbase-related addresses to ensure timely support for DAI's peg.

Conclusion

MakerDAO's prompt action to inject 250 million USDC into the PSM reflects its commitment to maintaining DAI's stability and user confidence. While the immediate crisis has been averted, the ongoing efforts to automate and streamline liquidity management will be crucial for the sustainable operation of the decentralized stablecoin in the future.

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