Arslan Butt
Coinbase offered MakerDAO a 1.5% annual yield in exchange for depositing 1.6 billion USDC in its institutional platform, Prime. Coinbase has stymied MakerDAO’s plans to reduce its reliance on USD collateral. However, they may force the DeFi champion to reconsider key elements of its strategic expansion strategy.
Coinbase Looks at MakerDAO’s Fund
According to the proposal, Coinbase Prime will get 33% of MakerDAO’s Peg Stability Module (PSM). Given MakerDAO’s PSU of $1.6 billion, Coinbase’s total holdings are likely to be $528 million. Profits from the investment will come from the Coinbase Prime custodial rewards program. In addition, the platform offers its users a 1.5% APY in exchange for custody.
The agreement would bring Maker an additional $24 million annual revenue if approved. The yield generated by the money in Coinbase’s custody and the funds themselves will be in USDC. They proposed it in response to MIP 13, which was first discussed on the MakerDAO forum earlier this year. The DAO’s governance necessitates the release of collateral assets to combine evaluative criteria such as safety, cost structure, and flexibility.
According to Coinbase’s proposal, the company is qualified for the position due to its significant market position. Furthermore, the platform stated that most of Maker’s assets are USDC and currently receive no holding benefits.
In addition to the 1.5% APY in USDC, Coinbase has provided free liquidity optimization and industry-leading security for Maker. As a result, Maker will not incur any custody fees for USDC stored on Coinbase Prime.
Key Challenges by MakerDAO
MakerDAO is a collateralized debt platform that allows users to mint its DAI stablecoin using assets provided as collateral. It initially accepted ETH as collateral but has since expanded to include more than a dozen other assets.
According to Daistats, USDC currently accounts for over a third of its total locked value of $9.3 billion. The proposal is an effort by MakerDAO founder Rune Christensen to repair the protocol’s design and address several issues.
For instance, the US government has sanctioned Tornado Cash, and there is concern that additional industry sanctions will cause stablecoin providers like MakerDAO to fail.
What Was the Reaction of the MakerDAO Community?
The MakerDAO community reacted negatively to the plan, with many anticipating disasters. It is due to Coinbase’s numerous run-ins with US authorities and the risk of entrusting your funds to a centralized organization. Furthermore, the recent bankruptcies of companies such as 3AC and Celsius have only heightened these concerns.
Coinbase’s creation of a liquid account for MakerDAO mitigates solvency issues. On the other hand, many people chose to ignore the risks and focus on the positive-more money for the DAO. The plan could address MakerDAO’s underinvestment problem while encouraging asset diversification through a lower-risk investment.
Members of MakerDAO core units such as the Growth Core Unit, Collateral Engineering Services Unit, and Strategic Finance Core Unit have endorsed the concept. According to Jenn, a Maker’s Growth core team member, MakerDAO and Coinbase have collaborated. Furthermore, this concept represents another significant turning point in the two organizations’ long-standing collaboration.
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This article was written for Business 2 Community by Arslan Butt.
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