Since it was first ever brought up, I’ve thought that the idea of allowing centralized stablecoins to be used as collateral was a terrible one, for exactly this reason. Governments (most of which have no problems p***ing in our pool, since we’re not under their thumb) have been known to just arbitrarily do things sometimes, and crypto is just as subject to this as anything else. By allowing collateral to depend upon a single organization, a single point of failure, that makes it very easy for a government to target that single point of failure and cause massive damage to the Maker Vault Credit System.
Someone in another thread pointed out that USDC collateral accounts for ~30% of Dai currently in circulation. If Centre ate it, at the time of writing that’s upwards of 175m Dai that is no longer backed by anything. Even at the conservative estimate given in the OP of ~20% of all collateral, that is still ~115m Dai.
In either case, that would be a huge problem. Exposing ourselves to that risk for the sake of quickly stabilizing the peg, and then not reflecting that risk in the LR and SF, and then continuing to crank up the DC on it was shortsighted, and we should not have done it.