fromcrypto – Exponential downgraded Maker DAI Group from low threat to medium threat, reflecting a reassessment of the dangers related to Maker's DAI hedging technique.
MakerDAO is a lending platform that helps a decentralized stablecoin referred to as DAI. The latter is pegged to the US greenback and supplies steady worth when customers trade extra risky cryptocurrencies.
The protocol permits anybody to take out loans in DAI utilizing different cryptocurrencies as collateral. These loans are over-collateralized, which implies it’s important to deposit extra property than you borrow.
The lender-debtor construction appears nice for MakerDAO, however exponential analysts say a radical evaluate of its evolving collateral technique justifies a downgrade to a mean threat score.
Initially, DAI was totally backed by on-chain property akin to ETH, , and several other centralized stablecoins, offering a direct, over-collateralized mannequin for DAI holders.
“Maker's transfer to incorporate actual property (RWA) in its collateral represents a major departure from the unique single-asset mannequin. This diversification, whereas enticing in a excessive rate of interest atmosphere, introduces new layers of threat that have to be addressed. ” Exponential co-founder Mehdi Lebbar advised fromcrypto.
Lebbar pointed to latest failures in smaller RWA vaults as a reminder of the dangers related to integrating conventional monetary devices into decentralized methods.
“It’s crucial for the DeFi neighborhood to grasp how these property generate income and the potential penalties ought to key RWA-backed vaults underperform or fail,” he stated.
When discussing the potential for future upgrades, Lebbar stated that “the potential for an improve exists if Maker can take away the lower-quality collateral and strengthen the governance mechanisms round protocol decision-making.”
He additionally warned of the dangers of additional growth into lower-quality collateral with out sturdy threat controls, saying “our purpose stays to make sure that the protocol's monetary well being and governance practices are aligned with the pursuits of DAI holders.”
Over time, MakerDAO has diversified its collateral, significantly specializing in actual property (RWA), which now account for almost 30% of DAI's whole collateral. This shift added new complexities and dangers, prompting Exponential to reassess the state of affairs.
In response to Exponential, reliance on RWA has allowed MakerDAO to extend its DAI Financial savings Charge (DSR) to eight% whereas benefiting from the present excessive rate of interest atmosphere within the US. Whereas this generates respectable earnings for MKR holders, it additionally brings higher counterparty dangers for DAI holders associated to authorized preparations and transparency.
“Questions come up akin to: How does every RWA generate income? Who’re the counterparties concerned in these transactions? Would MakerDAO be chargeable for making certain that justice is served in the true world within the occasion of default?
Whereas negligible in comparison with total DAI help, there have been already 4 defaults for smaller RWA vaults. If bigger RWA vaults expertise comparable failures, Maker may face a financial institution run that will destabilize DAI's $1:1 peg, the report warns.
Exponential analysts argue that the introduction of decrease high quality collateral deviates from DAI's unique decentralized mannequin and provides higher dangers to DAI's stability as a USD stablecoin.
“Bettering the standard of collateral may cut back the protocol's threat. As well as, improved governance mechanisms that successfully handle the dangers related to new sorts of collateral may additionally result in modernization.”
Exponential warned that additional growth of substandard collateral with out enough threat controls may result in additional downgrades.
