How Can Tornado Cash Problems Affect the DAI Stablecoin?
Decentralized stablecoin had added a stability support with centralized USDC reserve. After Tornado Cash ban this reserve can become a source of problems by itself.
Decentralized stablecoin had added a stability support with centralized USDC reserve. After Tornado Cash ban this reserve can become a source of problems by itself.
The statement of Rune Christensen, one of the founders of MakerDAO, about converting 3.5 billion USDC for Ethereum stirred up the community. The stable peg of DAI to the dollar is under threat again.
Until recently, discussions revolved around how the shockwave from Luna and Terra's collapse wiped out stablecoins and related projects one by one. Now, however, attention has shifted to Tornado Cash, which has come under sanctions and is poised to inflict similar, if not greater, damage on the crypto world.
Sanctions imposed on Tornado Cash mixer spread ripples beyond the privacy and compliance spheres. Co founder of decentralized stablecoin issuer MakerDAO, Rune Christensen shared his concerns about the mixer's ban.
“I have been doing more research into the consequences of the Tornado Cash sanction and, unfortunately, it is a lot more serious than I first thought.”
DAI is a decentralized stablecoin on Ethereum (ETH), which was launched in 2019. Its market capitalization at the time of writing is $7 billion according to CoinMarketCap .
However, since Black Thursday in 2021, DAI added an additional stability support by collaterizing centralized USDC coins. At the time it was a compromise of decentralization in favor of stability. Now, however, due to the Tornado Cash court case, some of the USDC assets, if passed through Tornado Mixer, can add to instability themselves. Circle, their issuer openly said it won’t accept them and DAI smart contracts are not smart enough to distinguish between good and bad USDC.
The stability support of the DAI stablecoin is now under question, so Christensen told they might propose to convert $3.5 billion dollars into Ethereum. After his statement price of the stablecoin and its market cap fell by 4%.
The idea of maintaining a stability reserve in ETH is not supported by the founder of Ethereum, Vitalik Buterin. He took to Twitter to dismiss Christensen's idea.
DAI is operating on one of the most complicated segments of blockchain spectrum, with many ties to the legacy finance. The latter has its rules that can't be ignored by decentralization tech.