[Discussion] Unwinding Stablecoin Exposure

LP tokens are a great long term solution to the peg problem imo. They can provide much of the stability of stablecoins, plus a yield. They are also versatile in that they can be held directly by the protocol without too much fear of volatility or custodial risk (depending on the token pair), as well as being open to the public. We would also be improving defi liquidity in general, which would help us indirectly.

I don’t have issue with any of the tokens talked about in the post, and think most of them represent excellent opportunities to improve dai stability while also being less complex to implement than RWA.

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How come noone thought of that 5 months ago? It comes with a price. 1 USDC might be worth 1 USD in a bank, but does MakerDAO want to open a bank account? Selling USDC for something else than 1 USD in a bank might be worth a different price when MakerDAO is a large seller.

So, that’s how decentralization dies … with thunderous applause (59% including wBTC). I wonder when people will realize that DAI is not the same DAI as 9 months ago: it’s just a wrapper for a weird combination of centralized stablecoins and (soon) yield farming tokens with an unpredictable value mostly in the range of $1.01 to $1.06.

I’m not against those assets but unwinding them when shit happens will incure big losses for the MakerDAO system.

The mentioned protocols are natural candidates for issuing stablecoins like DAI - they have almost everything on their side (capitalization, income, decentralized governance, more developers…) to outcompete MakerDAO so we have to be careful not to give them too much power.

EDIT: I forgot to offer a solution: do anything that is needed to make borrowing from ETH attractive. Limit borrowing from stablecoins and centralized assets and do not subsidize that risk. Raise more capital…

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I fully support your suggestion. I hope the team will first consider products that can produce large-scale DAI. Please don’t put time on the research of small products, our time is very tight.

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For the uniswap tokens, you need to stake them to earn the Uni rewards, So I don’t think there will be demand to deposit them into a CDP as you will not be able to receive rewards on the deposited tokens. I’m not sure if this will be an issue for the other tokens but should research as people will likely only deposit tokens into a CDP that they cant earn farming rewards on.

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Tokensets has a WETH/DAI UNI farming strategy. Tokenized form of the staked WETH/DAI UNI pair.

https://www.tokensets.com/portfolio/usdapy

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Hey folks, I’d like to understand the factors for wanting to reduce stablecoin exposure- there are some we might be able to help with and some we can’t. Potential factors:

  • Earning a higher yield (can be solved with tokens such as yTUSD, yUSDC, etc.)
  • Diversifying collateral beyond USD stablecoins (can be solved with tokens such as TGBP, TAUD, TCAD)
  • Avoiding or minimizing centralized counterparty risk (can help here e.g. by working with Chainlink oracles to post collateralization info on-chain, but certainly can’t solve this entirely)
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Could you point me to that vote?

Hey Hasu,

Signal Request here and on-chain Poll here.

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I think the main downsides to high stablecoin exposure are:

  • counterparty/custodial risk
  • no organic demand for usd-denominated stablecoins except for arbitrage.

Having non-USD stablecoins as collateral can help reduce the 2nd issue by turning MKR into a kind of forex exchange. But, it doesn’t eliminate the first issue.

There are very few assets though that have low volatility and no custodial risk. LP tokens are probably the closest thing we have rn, and any other non-custodial assets like this will have to have their value derived from decentralized currencies.

We are not trying to remove custodial risk altogether, but it is worrisome when a single counterparty like circle makes up a large percentage of the total dai debt. The best way to deal with the custodial asset types we do want to hold is to diversify across multiple counterparties and also multiple legal jurisdictions.

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@befitsandpiper- makes sense. I’d be interested to know if there are things that would make Maker more comfortable with the counterparty risk from an issuer like TrustToken. For example, if we had a third-party like BitGo hold the keys to the multisig that owns the smart contracts and refills the mint pools.

Well, we do have some Bitgo exposure with WBTC already. Might not be the best to lump you two together.

Though not technical advice, Bitgo could be more secure than your current set up.

I’m not sure how much this is actually the issue, at least for me personally. A larger concern is that you guys (and all centralized stablecoin issuers) are required to comply with directives from at least one government. Unfortunately that’s not really something that can be addressed.

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I agree, we should reduce our exposure to centralized stablecoins. There’s nothing wrong with stablecoins in general (although it should be noted that too much exposure to any one stablecoin, centralized or no, may be unhealthy).

While we wait for RWA to become a thing, and since new crypto collateral seems to be a little slow to onboard at the moment, we should look at what we can start doing right now to start influencing our exposure to these assets.

I’ve been saying that we need to try to make other assets more attractive to borrow against. Lower LR, lower RP, higher DC. I can’t guarantee that this would work; I can say that if I had a pile of wealth, and I was considering putting some of it in a vault and borrowing against it (probably to do some yield farming), I wouldn’t necessarily care exactly which asset I was borrowing against, so long as it gave me the best of those three things.

What I’m saying is that I think yield farmers don’t necessarily care what they’re putting into their vault; I think they care about how much Dai they can get out of it, and how much it costs them; exactly how much leverage they can get. Should we form a strategy around yield farming? I don’t know. It seems to be a booming sector right now, so I think it’s not a bad idea to move in that direction.

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While this can’t be solved in general, listing stablecoins from different fiat currencies may help hedge this risk. If US regulators, for example, passed strict regulation around USD stablecoins such as TUSD, this might not affect non-USD stablecoins such as TAUD, TGBP, TCAD, and THKD.

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The problem with that is–once the U.S. bans stablecoins made from a basket of USD – the other Authorities will follow, and in due time they will also restrict non-USD stablecoins, like TGBP.

I highly doubt the U.S. wants to abolish innovative Tech that pegs to the USD and has potential to score world exposure. Hence, you have some big time players pushing USDC to overtake USDT. The Washington DC guys would prefer USDC, versus USDT, or other CBDCs.

However, this was an interesting interview:

Laura Shin: “Valerie Stefanik of the SEC said that Certain type of stablecoins have raised issues under security laws. Which type of stablecoins do you believe veer more in that direction?”

SEC Commissioner, Hester Pierce: “I think Sometime when you see a stablecoins that’s build on a basket of underlying assets, it could implicate certain rules”

“We don’t think every stablecoin implicate security laws, but you should talk to us ”

What to do…

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Definitely a hard nut to crack. At the moment I think the only practical solution is to find a way to onboard as many different kinds of assets as soon as possible to minimize concentration risk which is rising day by day. This is easier said than done of course. I raised my hand to help with RWA, but most people seem to want Maker DAO to work wonders as they sit on their hands. If we want things to change, we have to be part of the solution in whatever way we can contribute. Complaining alone does not move the needle.

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I think it is healthy that stablecoins account for about 50% of the system. In fact, it has been proven that it can make the system more stable and balanced, so we are on the right path. As long as the stable currency does not exceed 60%, we do not need to change it. The only thing to do now is to concentrate human resources and accelerate the introduction of assets that can generate a lot of DAI. Those assets that cannot generate large amounts of DAI in the short to medium term should be postponed.

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100% this…

In general, the only way out of this stablecoin “trap” is to bring on collateral that has sustainable credit demand.

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I do not feel comfortable with DAI having half of its exposure to USDT/USDC because they are centralized and can rugpull if regulators force their hand. If that happens, it is game over. This is why it is imperative for people to help in onboarding as many different assets as possible.

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