I am a Senior Product Manager at Paxos and lead our DeFi efforts. We propose extending Paxos Standard’s [PAX] involvement in Maker through creating a PAX PSM to diversify DAI collateral and increase DAI trustworthiness. We discussed this proposal with the Maker Growth team and welcome feedback from the community.
DAI is 30% collateralized by USDC which creates a single point of failure in the Maker protocol. More than 60% of DAI is generated by USDC deposits. USDC has been coming under increasing regulatory and community pressure due to its treasury decisions; over 25% is non-government, third-party debt, which introduces liquidity, credit, and interest risk.
Given it’s beneficial for Maker to reduce USDC exposure, we believe PAX is the safest and most practical stablecoin to collateralize DAI due to its liquidity, scale, transparency and regulation. PAX is 100% backed either by US dollars held in fully segregated, bankruptcy remote accounts at insured depository institutions or in short term government securities (i.e. US Treasury Bills). Monthly attestations which can be found on our website. Both Paxos and PAX are regulated by a prudential regulator, the NYDFS. This regulation makes PAX more secure in that we are better positioned in the event of potential US stablecoin regulations because PAX has a prudential regulator, unlike other leading stablecoins.
As part of our proposed partnership with Maker, we plan to add DAI support on our platform, which means that Paxos Crypto Brokerage institutional clients (eg PayPal, Venmo, Revolut, etc) will be able to offer DAI to their end users.
Stablecoins play an important role in DeFi, and the community is growing concerned that the lack of trustworthiness of the largest stablecoins creates substantial risk for the future growth of crypto. PAX is the most trustworthy stablecoin and its use in the PSM will increase the trustworthiness of DAI while simultaneously diversifying risk to any one token.
Specification / Proposal Details
Below are the key components of the proposal. The
tout, and debt ceiling suggestions are based on a prior Maker Proposal. The proposal’s motivation is to have other stablecoin
tin be lower than USDC to incentivize diversification. However, we are open to widening the
tin between USDC and other stablecoins, as 10bps may not be enough incentive for diversification.
#1 Add PAX Support to Maker PSM
- Debt Ceiling: $500M
- Fee in (
- Fee out (
#2 Add DAI Support to Paxos Platform
By the end of Q1 2022 (if not sooner), Paxos will add DAI to the Paxos Platform, which unlocks the below user flows. We will focus first on DAI minting via PSM. We cannot contractually require any/all institutional clients (eg Revolut) to support DAI for their end users, but we can ensure DAI is an available stablecoin option.
- User can swap supported fiat currencies for DAI using the PSM (if best market rate)
- User can custody DAI
- User can buy/sell crypto using DAI
- User can deposit/withdraw DAI