Maker Adds USDC Stablecoin as Collateral to Improve DAI Borrowing

The largest project in the decentralized finance (DeFi) space, Maker, has approved adding Circle’s USDC stablecoin as a new collateral asset in the Maker Protocol, amid an ongoing liquidity crisis.

According to a blog post, the move came as a result of an Executive vote held by MKR token holders on accepting the USDC stablecoin as a type of collateral. As it was approved by MKR holders, it now became the third cryptoasset that can be used to open Maker Vaults and generate the DAI stablecoin, along with Ethereum’s ether and Brave’s Basic Attention Token (BAT).

Before the vote, the Maker community looking into the pros and coins of adding the stablecoin, which many see as centralized as it’s issued by centralized organizations that have to conduct know your customer (KYC) and anti-money laundering (AML) checks. The post, pointing to a recording of a meeting held, reads:

In addition, the governance community considered in a public meeting what, if any, impact adding a centralized stablecoin as a collateral type to the protocol might have on users and the Decentralized Finance (DeFi) movement as a whole.

The move was also made to address DAI’s ongoing stability and liquidity issues, that have result from the cryptocurrency market crash from last week, that saw BTC plummet from $7,100 to $4,100 in a 24-hour period.

Those who mint DAI using USDC will pay an annual stability fee of 20%, and will have a 125% collateralization ratio, as well as 13% penalty for liquidation. The addition of a stablecoin will help support MakjerDAO’s protocol, which works by creating DAI loans to users who load funds as collateral. As ether and BAT are rather volatile, when their price plummeted the system failed to sell the collateral to get DAI off the market in time.

As a result, Maker decided to hold an MKR auction to pay back a $4 million surplus created amid the market crash. The auction was made to help Maker avoid having to shut down, or effectively reboot the network.

Featured image via Pixabay.