Thoughts on the PSM, stablecoins and the TUSD issue

The current TUSD issue and the introduction of the PSM made me think of the stablecoins evolution.

We are basically moving from a position where a stablecoin is risky collateral to saying that USDC is the same as DAI. This might be okay, but I’m not sure we are working hard on that front.

If we move things forward, we might have a consortium (or, not ideally, a regulation) stating what the rules are to be considered money in DeFi. This would encourage some kind of fungibility of Tier 1 stablecoins (which, obviously, exclude USDT). Being in those Tier 1 stablecoins will be a competitive advantage and a moat. I guess this step might happen when a big algorithmic stablecoin will fail (or USDT).

The next step would be the introduction of a clearing mechanism between banks (or coin issuers). Each bank, having coins from another bank, will bring those coins to get dollars in exchange. This would require us to open a bank account (most likely a eurodollars bank account) and would impose liquidity constraints on us. But on others as well. Indeed, how fun would that be to bring our half a billion USDC to Circle for cash and see them fail to do the transaction.

If we succeed to do that (the DeFi ecosystem as a whole), I don’t think there would be any difference between having DAI/USDC/TUSD, having a $ account in London or NY.

This was the prediction of the day. If this is the future, we will have to decide if DAI fits inside this system or outside.

I do not think we should we send the message that USDC is the same as Dai. There are 3 major differences:

  1. Dai does not have the same ToS as USDC: e.g. USDC prohibits use in gambling
  2. Dai cannot blacklist or freeze addresses. USDC can
  3. Dai has built-in insurance for its holders (i.e. MKR issuance) in case collateral loses its value. USDC does not have this feature (and its entirely possible that one day USDC could break its peg if its deposits lose value or if some are lost due to theft/fraud).

We should be clear that we are in the short-term prioritizing maintenance of the peg over the very remote blackswan risks of holding USDC as collateral. This requires use of USDC for now (and other similar centralized stablecoins) but as other forms of trustless collateral gain popularity, we will be moving to reduce our exposure to centralized collateral.


We are taking a wrong path and because of that DAI will be completely dependent on USDC while having much less liquidity and usage. All the regulations and limits that apply to USDC will apply directly or indirectly to DAI also.

USDC can blacklist Maker if USDC is used as collateral for gambling

but USDC can blacklist Maker

MKR was of the worst crypto investments in the last few years (-77% compared to ETH a year ago, and backing with dilluted MKR is almost the same as backing with dilluted dogecoin.

No, that requires only the courage to move DAI dependency from USDC to ETH accompanied with the appropriate tools and incentives. My suggestion from a few months ago: Should we print 100M DAI to buy ETH? is just one example.

Calling DAI backed by ETH “unbacked” DAI while calling DAI backed by USDC (that cannot be sold for more than $0.99) fully backed is misleading.


Thats actually genius isn’t it? Just mint DAI and buy ETH instantly with it and then hold that ETH in it’s own vault for redemption? What’s the downside? I don’t see a PR problem if ppl know they can always redeem 1:1.


This isn’t courage, it’s negligence. If you buy ETH with printed Dai and the price decreases, that Dai will be unbacked and it will put the entire system at risk.


People cannot redeem now also. Has the ES been tried? If the ES is needed, do we know it will gather enough votes?

I suggest we make an ES test on 1/1/2021. What could go wrong?

EDIT: typo

Right, forgot about the downside risk there.

If you had to decide today which coins were tier one and which were tier two (like USDT), which would you put in each camp out of the biggest stable-coins right now?

Tier 1 = USDC, GUSD
Tier 2 = TUSD, PAX
Tier 10 = USDT

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USDC in my honest opinion, has 2 to 1 odds of becoming the CBDC of the United States. Hands down it is the premier stablecoin of them All.

Hence, Tier 1 is USDC, GUSD, and PAX. (IMO)

Paxos recently completed a Series C ($142M), locked down a deal with PayPal, and will more than likely receive their Bank Charter soon. I also believe the Paxos folks are racing against the clock to catch up to USDC, and they are aware that USDC is in the drivers seat. But as I always say, All competition is healthy IMO.


Agree, but USDC allows to recover fund if you made a mistake. You have lower credit risk as they have only cash or t-bills (currently). They are as transparent as an imperial stout. They are both of the same category stablecoin, but different flavours. Just like a dollar and an eurodollar are not the same but no one see much difference. Or a dollar note and a dollar in your bank account.

My view is that a stablecoin is no more no less than a privately issued bank note. This doesn’t exist currently in the real world but it did exist during Free Banking eras. And I believe that stablecoin issuers will become real banks.

It is a hypothesis that such a consortium will take place, but I think it makes sense.

Tier 10: USDT, ESD, BAC, sUSD, …

To me, in Tier 1 are stablecoins in a consortium or under regulation. The real question is: Do we want to be in Tier 1? Or do we want to stay alone? Do we want to be in the next financial system or outside (not saying it would be a bad idea)?

I think that our choice to onboard RWA already took the option from us (can’t see RWA implemented without some sort of regulation)


Gave me a good lol. I agree with the ideas behind this, I’m always a little worried about stablecoin exposure (like most on the forum seem to be) but the PSM makes a big difference and if we have to lean on another stablecoin for a bit while we build our “moat” USDC is the clear choice.

At the end of the day we do want it to be clear that DAI is a better stablecoin, but the team behind USDC and Coinbase’s general clout in the US make it a good initial partner. Ultimately though, I think it makes a lot of sense to have broad base of stablecoin support for the PSM, the biggest challenge will be figuring out how to protect ourselves from a heavily used stablecoin experiencing major theft/fraud and IMO the clear answer is to not be over exposed to any particular stablecoin.

Haha Tier 10

I don’t see how Dai could ever be in the same category as USDC since regulated stablecoins need to have blacklists. If Dai ever implemented this, it would be hard to see why anyone should use Dai as opposed to USDC as the latter has lower credit risk (as you point out). What other reason would someone hold Dai instead of USDC except that they wanted a permissionless stablecoin with built in insurance? Dai with blacklists is a dead dai.


Unfortunately, this is tied to other features (seizure). I would guess people would/will prefer sending money through the smart contract with the same functionality.

Yeah, very likely.

Stay alone. I mean, what’s the point otherwise.


I am sure you meant :

Tier 1: DAI
Tier 10: USDT, ESD, BAC, sUSD, …

It is more risky to have USDC or Cdai without enter into compound the market? (AKA without liquidity possibility)

Good point. that’s why I think a consortium would be an alternative to “regulation”. If there is a stablecoin regulation and we don’t comply, what happens next? I don’t see how that works. As @mario has pointed out we already made the choice when we decided to onboard RWA (and USDC, and probably WBTC)

@alexis personally, having cDAI makes more sense than having USDC.

I also don’t put DAI above the rest because it is not. If you have a plan on making Maker having a monopoly on money in the crypto financial system and not getting hit by regulation, sure let’s do that. But I don’t see the path.

I easily see Maker having 25-50% market share of a trillion $ market with Circle, Kraken, Binance and Paxos as competitors. We have a differentiated approach which is good. That’s enough for me for the next 5 years.

Well, that’s the problem of governance. We don’t want to vote on politics directly.I mean, we can’t stand for the ‘unbanked’ and at the same time submit to regulations. It’s contradictory.

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I guess it’s easier to solve one problem at a time than discussing strategy?

Our stance versus regulation is super important but it is not discussed much. I guess most people would be against regulation (there was a poll somewhere). Yet, we are moving more and more in the regulation playground (RWA, USDC, …).

We want to bank the unbanked and yet we increase the dust.

I’m happy to see great contributions in this post because, indeed, it is important to discuss where DAI will fit in the competitive landscape. I don’t have the answer. Quite sure that, together, we will find something.

To come back on the stablecoin exposure, I think @g_dip (but not sure) proposed that we open a bank account (through a Trust for instance) Therefore no more stablecoin risk. Besides being complex, is that strictly better than having a 500M USDC exposure? I guess so but some might disagree.