The de-anchoring of DAI price comes from a large amount of USDC lending DAI 1:1 through Maker's PSM module to conduct a series of arbitrage operations. Currently, lending DAI through PSM should be the most stable arbitrage method for USDC until DAI becomes unanchored to a greater extent or MakerDAO closes the function of the PSM module. At present, PSM documents can no longer be found on the official portal, and MakerDAO has previously proposed a plan to reduce the proportion of RWA.
The birth of PSM
In 2020, MakerDAO launched the Peg Stability Module (PSM) amid severe market fluctuations. It allows users to swap fiat stablecoins ($USDC, $USDP, $GUSD) with $DAI in a cost-free manner. PSM strengthens the peg of $DAI to the value of the U.S. dollar through arbitrage, as arbitrage traders are now able to arbitrage the price difference between $DAI and other fiat-backed stablecoins.
Unlike over-collateralized borrowing products such as $ETH vault, using the PSM module does not retain ownership of the fiat stablecoin, but directly exchanges it for $DAI. You can also return $DAI to the PSM module and get back fiat stablecoins, up to the amount in PSM.
Proposed the "Endgame" plan to abandon DAI anchoring to the US dollar
On August 28, 2022, MakerDAO co-founder Rune Christensen published an article "The Road to Compliance and the Road to Decentralization: Why Maker has no choice but to prepare for free-floating DAI", pointing out that currently more than 50% of DAI is held by USDC Staking, and regulatory crackdowns on cryptocurrencies can happen without prior notice.
There is no possibility of recovery even for legitimate, innocent users. Therefore, Rune Christensen suggested gradually increasing DAI’s share of decentralized asset collateral through a plan called the “Endgame Plan” to improve censorship resistance. Rune pointed out that this process may lead to the loss of 50% of users, but Maker will give priority to decentralization and allow DAI to be decoupled from the US dollar to maintain decentralization.
Main contents of Endgame plan
- Split the complex MakerDAO governance into multiple MetaDAOs, responsible for specific governance responsibilities, and improve the decentralization of governance: each MetaDAO can focus on its own tasks, realizing multi-center governance, allowing MetaDAO to execute in parallel, speeding up governance process. MetaDAO is independent of each other, has its own governance token and governance process, and needs to earn its own revenue.
- Split the complex MakerDAO governance into multiple MetaDAOs, responsible for specific governance responsibilities, and improve the decentralization of governance: each MetaDAO can focus on its own tasks, realizing multi-center governance, allowing MetaDAO to execute in parallel, speeding up governance process. MetaDAO is independent of each other, has its own governance token and governance process, and needs to earn its own revenue.
- Introduce more decentralized assets: reduce the stability fees of mortgage assets such as ETH and wBTC, and reduce the need to mint DAI through USDC; introduce ETHD, allowing users to mint ETHD through stETH and then mint DAI to increase the share of ETH in mortgage assets share, thereby increasing the proportion of decentralized assets.
- Three progressive collateral strategies to gradually achieve decentralization: the three strategies are dove, eagle, and phoenix, which gradually develop forward with the timeline and are gradually advanced according to regulatory threats.
Dove strategy: Increase collateral assets as much as possible to maintain rapid asset growth
· Eagle strategy: If DAI is attacked by an authority, the risk exposure of real assets (RWA) that can be controlled by an authority will be limited to 25% to seek a balance between performance growth and flexibility.
· Phoenix strategy: If there is evidence that an authoritative attack is imminent or all collateral of RWA has been confiscated, it will transition to the Phoenix strategy that eliminates all RWA risk exposure. Only RWA that cannot be controlled by authoritative institutions can be used as collateral.
- Will allow DAI to be decoupled from USD in case of authoritative attack: Rune assumes that during the initial phase of activating DAI to free float, up to 50% of protocol users will leave within a short period of time. At this stage, Maker allows DAI to float freely from USD 1:1 and gradually changes the price according to the target rate. A positive target rate increases the demand for DAI and reduces the supply of DAI, while a negative target rate has the opposite effect. Effect.
The relative stability of DAI is achieved by adjusting interest rates and does not need to be pegged to the US dollar at a 1:1 ratio. Rune also stated that DAI will remain anchored to the U.S. dollar for at least three years, and this period will be extended if there is no direct threat. If the decentralization of collateral can be increased to 75%, the peg to the U.S. dollar will be maintained indefinitely.
"Endgame" plan progress
The "Endgame Plan" proposal was launched on October 10, 2022, and has currently passed community voting. The Endgame plan's roadmap is divided into 4 main phases. The advance version will be launched within 12 months, build ETHD, launch 6 MetaDAOs, start liquidity mining of MetaDAO's own token system, etc. However, the full version won't launch until 2030 or later.
Conclusion
Judging from the current situation, MakerDAO is on the verge of triggering the Phoenix Strategy. PSM documents have been offline from the official entrance, indicating that the USDC incident has received great attention from Maker. Looking forward to seeing Maker’s further steps and DAI’s price movement.
