Crypto Lender Maker Turns to Staked Ether to Reduce USDC Influence

Crypto lending platform Maker, the largest decentralized finance (DeFi) protocol, doubled the debt ceiling of its staked ether (stETH) vault this week as it looks to reduce its reliance on centralized stablecoins after Centre, the issuer of USD coin (USDC) blacklisted some 38 addresses linked to sanctioned crypto tool Tornado Cash.

More than 34% of all assets locked on USDC are locked on Maker and the tokens are the single-largest source of collateral that backs DAI, Maker’s native decentralized stablecoin pegged to U.S. dollars. Approval of the proposal to raise the ceiling to $200 million allows more stETH to be deposited against DAI, reducing USDC’s influence.

This role of USDC in the system has led to criticism for DAI among market observers, with some even terming it “wrapped USDC” – or an alternative for USDC tokens. Erik Vorhees, the founder of crypto trading platform ShapeShift, has publicly appealed for Maker to start “unwinding its USDC collateral immediately.”

“There’s a natural tension between centralized stablecoins and projects like DAI that want to be permissionless and uncensorable,” Maker founder Rune Christensen said in a CoinDesk TV interview in August. The decision to lean on USDC allowed Maker to grow and focus on an easy user experience, but came with tradeoffs that are now fully visible, he said.

Some $49 million worth of stETH has flowed into the vault since the ceiling was raised, data from tracking service Daistats shows. Staked ether is a token supplied to users who lock up ether on Lido, a staking service, and receive the stETH tokens in return. More than 245,377 stETH is locked on Maker, the data show. Maker has a total value locked of $8.4 billion.

The stETH vault has a 0% stability fee, meaning users do not have to pay fees to Maker on their positions. This essentially creates “free dai” for users, Maker said in a Tuesday tweet.

Free Dai minting?

There is only one volatile-collateral vault type with a 0% Stability Fee — WSTETH-B

The latest Executive Vote raised its Debt Ceiling to 200 million Dai, and the Dai minted from this vault type is on its way to filling the available debt, again.

↓ pic.twitter.com/zfLbEpDuTk

— Maker (@MakerDAO) September 12, 2022