Will MakerDAO’s new changes instill confidence in DAI? Examining…

• MakerDAO has a new proposal to introduce changes to its PSM operations.
• DAI’s supply has dwindled since USDC’s de-pegging, due to a lack of demand. 

Leading decentralized finance protocol, MakerDAO [MKR], has proposed changes to its Peg Stability Module (PSM) operations in response to DAI’s recent loss of parity with the US dollar. The proposal seeks community approval to adjust the PSM parameters. These were previously adjusted through a series of emergency proposals to prevent the stablecoin’s permanent de-pegging.

Is your portfolio green? Check out the Maker Profit Calculator

According to the proposal, either of the two options could be explored. The first option would involve diversifying MakerDAO’s PSM stablecoin reserves across multiple assets to prevent risk concentration and “resilience of stablecoin liquidity.”

Under this option, MakerDAO proposes a reduction of USD Coin [USDC] to DAI swap fees and decreasing available debt and debt ceiling for its USDC, GUSD, and USDP PSMs.

The second option that could be explored is the maintenance of USDC as the protocol’s primary reserve. Identifying the risk that could emerge from this, MakerDAO noted:

“However, DAI would continue to have significant exposure to USDC, which may be less resilient on a fundamental basis compared to other stablecoins. This could put liquidations of crypto-collateralized vaults at risk if the DAI price spikes upward in the future.” 

Under this option, the proposed parameters for MakerDAO’s USDC PSM include reducing the USDC to DAI swap fee from 1% to 0% and increasing the target available debt from 250 million DAI to 400 million DAI. For its GUSD PSM, the proposal seeks to reduce the GUSD to DAI swap fee from 0.1% to 0% and increase the target available debt from 10 million DAI to 50 million DAI, among other changes, among other changes.

At press time, 53.93% of the total votes cast favored stablecoin reserves diversification. 

Source: MakerDAO Governance

Call the paramedics for DAI and MKR

While these parameter changes represent attempts by the DeFi protocol to shore up confidence in its DAI stablecoin, DAI’s exposure to USDC has resulted in a drop in demand for the stablecoin. 

Read Maker’s [MKR] Price Prediction 2023-24

According to data from Maker Burn, DAI’s supply has dwindled since USDC first lost its peg. At 5.5 billion at press time, the stablecoin’s supply has since decreased by 15%. The drop in DAI’s supply has been due to the drop in demand for the stablecoin since the Silicon Valley Bank (SVIB) episode. 

Source: Maker Burn

As for MakerDAO’s governance token MKR, it has also been plagued by waning buying pressure. As selling momentum accumulates, further driving down the altcoin’s value, more investors exit their trading positions to hedge against further losses. Per data from Coinglass, MKR’s Open Interest has been on a downward trend since 14 March.

Source: Coinglass