On Wednesday, the governance token behind the fifth most popular stablecoin DAI, MakerDAO unveiled its recovery plan for the stablecoin. In its latest Twitter post, the decentralized autonomous organization highlighted the plan developed to foster the stability of the token.
As part of the plan, MakerDAO Core units want to consider multiple proposals to restrict the exposure of MakerDAO to centralized stablecoins. More so, the DAO wants to introduce PSM swaps and redemption curves. This, as revealed, will help slow down the 1:1 swaps, particularly during emergencies.
According to MakerDAO, it has also decided to consider diversifying an appreciable amount of its stablecoin reserves to money market assets. Notably, these assets, which include US Treasury bonds are liquid-oriented, thereby protecting the price of DAI amidst any major sell-offs. By diversifying its reserves to these assets, MakerDAO also aims to increment its control over the liquid backing of DAI.
Worthy of note that this diversification will help expand the sources of MakerDAO’s revenue. More so, it will go a long way in increasing the DAI Savings Rate (DSR), thereby aiding distributing of earnings to holders.
Meanwhile, this development by MakerDAO comes amid the ongoing regulatory clampdown in the banking sector. As of press time, the “3S” representing Silvergate, Silicon Valley and Signature bank are in crisis. Just within the past few days, regulators have taken over Silicon Valley Bank (SVB) and Signature. Shortly after this development, Circle came out to explain how $3.3 billion cash backing its coin is tied with SVB. The USD coin issuer attempted to withdraw the funds amid the clampdown but the withdrawal could not processed due to weekend closure.
MakerDAO explains how SVB crisis led to the fall in DAI price
It is noteworthy that this situation led to a massive sell-off of USDC in the stablecoin market. This development, according to MakerDAO, caused the depeg of USDC over the weekend, thereby causing a negative movement in the price of DAI. According to MakerDAO, its Peg Stability Module (PSM) initially allow USDC-DAI swaps at a 1:1 fixed rate. More so, it said this PSM usually backs minted DAI with deposited USDC.
However, the exposure to SVB over the weekend caused an increased USDC inflows in the PSM. This, in turn, led to the exposure of MakerDAO USDC to double to $4B last weekend. Following this market trend, the price of DAI became hugely affected since the PSM exchange rate remains fixed at 1:1.