A question came up in the internal chat asking what, if any, the risk of a USDC stability fee of 0% posed to the system; the following is my response, posted here at the request of others. I think that this is well understood by those who expressed their concerns about adding USDC in March, but I want to share here for those who are participating in governance votes that are determining the collateral fees.
The collateral stability fee is essentially an insurance policy against the risk of the protocol taking losses against a given collateral type. USDC is much riskier than it appears because it is centrally managed by a company that is subject to U.S. regulators. The USDC token has a blacklist mechanism that can be toggled if they are ordered to do so. The current regulatory climate for stablecoins does not look not promising, think of how Zuck got pulled in to testify over suggesting that Facebook create their own coin, and the Federal Reserve and congress have recently been making sweeping statements about their dislike of stablecoins. It is very likely that U.S. regulators could push on Coinbase/Circle to blacklist the Dai adapter to weaken MakerDAO. At that point, all of the USDC would be frozen in place and can’t be transferred in or out, so we can’t liquidate accounts and users can’t withdraw collateral. The protocol would incur a total loss for the balance of USDC on-hand, which could be worth up to $20 million dollars. A USDC stability fee of 20% (the rate of the USDC fee when the collateral was deployed) is basically an insurance policy that the adapter won’t be blacklisted within the next five years, at a 10% fee, 10 years. At 0%, the system is subsidizing all of the risk that USDC will be shut down in the future. I’m personally not comfortable with that. We’re still reeling from an $8 million loss a month and a half ago, I’m not sure that the system can handle the PR backlash and fallout from $20 million in losses and a frozen adapter.