The sanctions on Tornado Cash turn the spotlight on MakerDAO, particularly concerning the stability of USDC as collateral.
With the U.S. sanctioning Tornado Cash, the implications ripple through the crypto landscape, putting MakerDAO's stability on the line.
On August 8, the U.S. Treasury's Office of Foreign Assets Control (OFAC) enforced sanctions against the cryptocurrency mixer known as Tornado Cash. This tool was not only favored by Ethereum co-founder Vitalik Buterin for philanthropic efforts but also exploited by various hackers, including those behind the Harmony Bridge breach. This software operates without tracking sender information, ensuring the anonymity of recipients. Ethereum According to reports, Tornado Cash has been implicated in laundering over $7 billion worth of cryptocurrency since it launched in 2019. This figure includes $96 million associated with the recent Nomad Heist that occurred on August 2. Notably, it was also used in the infamous Lazarus Group's heist, the largest cryptocurrency theft on record, amounting to $455 million.
An OFAC release Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson pointed out that Tornado Cash has repeatedly failed to implement effective measures against laundering activities associated with malicious cyber actors. Harmony Bridge The OFAC's decision has sent shockwaves through the cryptocurrency community, putting a spotlight on USDC, Circle's second-most valuable cryptocurrency.
“ Tornado Cash As if the ongoing crypto winter wasn’t enough, this summer brings another storm.
"On Tuesday, Centre, the organization responsible for USDC, blacklisted 38 wallet addresses and froze the USDC tokens linked to them,\" stated an official. stablecoin out there.
Established in 2017, MakerDAO has evolved into the largest player in the DeFi sector, with approximately $8.7 billion locked within its platform. However, the recent sanctions on Tornado Cash have left MakerDAO at risk of emergency shutdown. Initially, MakerDAO allowed users to mint tokens solely against overcollateralized ETH deposits, which helped maintain their treasury's stability during volatile market conditions. However, with the expansion of allowable collateral assets, USDC's role has surged, inviting scrutiny regarding the project’s decentralization. domino tumble .
Current metrics indicate that Maker's PSM-USDC-A accounts for 33.1% of DAI's overall collateralization, reflecting a slight increase from the previous Friday. USDC Critics have emerged, decrying actions taken by GitHub and Centre; they view the latter's moves as a betrayal of the censorship resistance that embodies true decentralization. Decrypt highlighted that Centre’s decision to blacklist the wallets and freeze their funds was not driven by malice, but rather by a need for compliance and adherence to ethical standards. the Defiant .
"We recognize that complying with legal obligations and curbing money laundering is both the right thing to do and our duty as a regulated financial institution,” stated CEO Jeremy Allaire in a communication dated August 9. native stablecoin DAI \"We understand that adhering to these standards conflicts with our core belief in the value of open-source software and the preservation of privacy as a foundational principle in the issuance and circulation of digital dollar currencies.\"
At the time of writing, Daistats MakerDAO's founder, Rune Christensen, expressed on Discord, \"If the U.S. government takes action against us, we essentially cease to exist.\"
"In the short term, we don’t possess the capability to counteract a crackdown; we can't magically resolve this. Our best plan is to hope we avoid sanctions for now and focus on building the foundational systems necessary to withstand real-world pressures. We should brace ourselves for the possibility of an immediate emergency shutdown if they decide to shut us down.\" A team named Phoenix may need to strategize their approach to this challenge.
MakerDAO's protocol engineer, Hexonaut, also shared on Discord that \"people act as though we've not been working to minimize our exposure to USDC since the onset. Diversifying into real-world assets has always been the target... If you oppose USDC, you should support the onboarding of RWAs.\" blog post In contrast, MakerDAO's contract engineer Brian McMichael countered, asserting that \"RWAs present the same challenge. USDC is essentially an RWA, hence our current dilemma.\"
"We should give serious thought to preparing for potential scenarios,\" he emphasized on August 11. \"It appears almost unavoidable, and adequate preparation is the only realistic approach.\"
In light of the Tornado Cash sanctions, Rune Christensen, founder of MakerDAO, is contemplating transitioning away from USDC as collateral and considering converting USDC holdings into ETH. Vitalik has proposed that collateral not based on ETH should surpass 20% of the overall.
On the same day, he introduced the concept of 'uprooting,' also known informally as the \"yolo USDC into ETH\" strategy, where 'yolo' likely refers to the popular phrase 'you only live once.'
"It's clearly reckless to throw everything into this approach,\" Christensen noted (very true), but “the market may start rewarding decentralization to a degree that makes these risks palatable as USDC loses its previously straightforward appeal.\"
But what, ultimately, is the meaning of existence? Perhaps this moment serves as an opportunity to engage in dialogue about the ethics that decentralization seeks to protect. However, the term 'yolo' rarely precedes careful contemplation, and the overall atmosphere has a distinctly ominous tone. depeg from USD,” Christensen wrote \"MakerDAO is contemplating a substantial $3.5 billion ETH market purchase, which would involve converting all USDC from the peg stability module into ETH,\" declared Banteg.
If ETH experiences a significant price drop, the value of collateral will decrease sharply, although CDPs would remain untouched, potentially placing the entire system at risk of becoming a fractional reserve.
Vitalik posited that \"non-ETH collateral should be permitted to exceed 20% of the total amount.\"
The OFAC's original announcement concludes with a reminder: \"The authority and integrity of OFAC sanctions stem not solely from its capacity to add entities to the SDN List but also from its preparedness to remove entities in accordance with the law. The ultimate purpose of sanctions is not punitive; it aims to foster a positive shift in behavior.\"
Only the final sentence truly captures the rebellious spirit of punk music. Is it possible for decentralization to coexist within centralized frameworks? Can it thrive independently of those structures? How could one ensure their efforts bear fruit? Soon enough, actionable insights will emerge as the Tornado Cash sanctions compel MakerDAO to confront and solve an incredibly complex dilemma on the fly. tweeted Someone sends 0.1 ETH to notable wallets utilizing the U.S.-banned service Tornado Cash.
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Vittoria Benzine is a Brooklyn-based writer focusing on contemporary art. She explores human contexts, counterculture, and chaos magic, contributing to numerous publications, including Maxim, Hyperallergic, and Brooklyn Magazine.
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