MakerDAO’s DAI Shifts Collateral Base, Reducing Dependence on USDC

• MakerDAO’s DAI has decreased its dependence on USDC as collateral from $2.4 billion to around $520 million since the start of the year.
• The role of Ethereum derivatives, like Wrapped Ether (WETH) and Wrapped Staked Ether (wstETH), as DAI’s collateral has considerably increased.

MakerDAO’s decentralized U.S. dollar stablecoin, DAI, has recently embarked on a journey to lessen its reliance on USDC as a collateral asset. Over the past months, the stablecoin has seen a substantial decline in the amount of USDC used within its Peg Stability Module (PSM).

The PSM, a crucial component of MakerDAO’s architecture, enables users to deposit USDC and mint DAI at a 1:1 ratio, ensuring that the stablecoin maintains its peg to the U.S. dollar. As reported by DeFiLlama, about $2.4 billion of USDC was locked in the PSM at the onset of the year. In contrast, as of now, this figure has fallen to approximately $520 million — a steep 78% decrease in the amount of USDC directly backing DAI in its contracts.

Although there has been a notable reduction, USDC’s relationship with the project persists through MakerDAO’s affiliation with Coinbase. It’s noteworthy that the overall proportion of USDC in DAI’s collateral reserves has dwindled from around 50% to a mere 8%, as per DeFiLlama data. Currently, the circulating supply of DAI stands at a substantial 4.7 billion.

Sébastien Derivaux, an analyst at MakerDAO’s Strategic Finance unit, explains the reduced USDC reserve as a result of new methods to derive yield from previously unproductive assets.

The shift in collateral can be attributed mainly to MakerDAO’s strategy to diversify its balance sheet with real-world assets. The team behind the project noted that $1 billion of its USDC reserves have been utilized to acquire U.S. Treasury bills, and an additional $500 million worth of USDC has been transferred to Coinbase Custody to earn rewards.

The reduction in reliance on USDC as collateral has paved the way for Ethereum derivatives to take center stage. Currently, Wrapped Ether (WETH) and Wrapped Staked Ether (wstETH) form the largest part of DAI’s collateral, contributing $4.3 billion or 68% of the total collateral value.

In an interesting turn of events, wstETH has been gaining momentum recently and is inching closer to WETH regarding the total value locked (TVL) within MakerDAO. This development implies that DAI could potentially leverage Ethereum staking rewards, subsequently boosting its backing over time.

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