First post after lurking for so long around here, so please feel free to correct me if I have any misconceptions.
The elimination of fees to the PSM-USDC has probably made Maker the most cost effective ‘swap’ for USDC to DAI than any other platform. This has caused the USDC that backs DAI issued to be increasing at a very rapid pace. While this is good for DAI adoption, it increases our risk in case our address is blacklisted. I think we need to do more to find ways for the protocol itself to slowly derisk and reduce USDC reliance.
What are the current efforts that is trying to tackle this issue? IIUC to decrease USDC risk we need to decrease the amount of USDC in the PSM, increase the proportion of other collaterals compared to USDC, or have a system surplus big enough that problems with USDC will not matter at all.
I have seen some ideas thrown around here last year and am wondering if we can use the USDC in PSM to earn yield via mechanism similar to D3M (with Debt Ceiling limited to a certain % of USDC in the PSM) or other mechanism?
Using the USDC earned
Reducing value in PSM
What I still cannot really think of is how to use this yield in USDC to lower the PSM or increase other collateral without increasing the DAI peg. If we use the USDC to buy DAI, we will be basically neutralizing the PSM and also reducing the amount of DAI in circulation.
We can also auction the USDC to buy ETH from the market, which can be used for the protocol expenses (CMIIW but there are some ETH required for oracle costs right?). This reduces the need to take money from the surplus buffer (allowing us to burn more MKR)
Semi related to the previous usage, if we can use the USDC yield for some protocol expenses, we can allow the surplus buffer to continue increasing faster, as far as I understand, more DAI in surplus buffer reduces our overall risk in case a black swan event happens.