In an effort to promote the use of USDP, Paxos has offered a deal to MakerDAO for more use of its stablecoin in DAI collateralization. One of the arguments put forward is a decrease in reliance on USDC.
Paxos turns to MakerDAO to promote USDP
In an effort to promote the use of its stablecoin, the Paxos company has opened a discussion on the MakerDAO Governance Forum, to increase the use of USDP to $1.5 billion in the collateralisation of the DAI.
DAI is the first decentralized stablecoin in the ecosystem, and its algorithmic operation has proven itself in recent years. In fact, to issue new tokens, it is a question of providing guarantees, such as a loan on Aave. When this guarantee is not fulfilled, a liquidation system is put in place to ensure the good health of the DAI.
The idea is therefore to promote a greater use of USDP in this mechanic, in exchange for which Paxos will offer 45% of the US federal rate as a marketing commission. At a current rate of 4.3%, Paxos estimates that this deal would bring MakerDAO $29 million annually, paid in USDP.
The decision to index costs at key rates is not negligible. And for good reason, USDP works centrally and a large part of its capitalization it is backed by US Treasury bills whose yield depends in particular on these rates.
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Diversification from USDC
Should such an agreement occur, Paxos supports it would allow DAI to diversify its exposure to USDC. The latter is often a reason for “criticism” of the DAI, due to its importance in the collateralization of this stablecoin, or around 30% according to Paxos.
While it’s really interesting for MakerDAO to diversify its risk in terms of centralized players, let’s qualify these observations. Indeed, Paxos has similarities to Circlethe issuing company of USDC, in the way it issues its USDP, and is also a centralized player.
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Nowadays, $1.5 billion represents nearly 30% of the capitalization of the DAIand that cap is set to increase to 2 billion in 2023. However, the stablecoin’s capitalization is expected to increase as its usage increases as the market actually recovers, diluting USDP’s market share.
If agreed, this will be signed with the RWA Foundation (Real-world assets), which represents MakerDAO for business partnerships with legal entities.
These discussions are currently only at the proposal stage, and it is still too early to know if these terms will be accepted by MakerDAO governance. Still, it’s interesting to watch many ways to protect DAI they gravitate towards the protocol, which tends to reinforce it in case of failure of one of these collateralisation elements.
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Source: Governance Forum
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I timidly discovered the world of blockchain in late 2018 during my quest for financial freedom. Initially invested moderately, only two years later I took the bet of betting everything on the movement that was then taking shape. I then dedicate 2021 to training better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I know, I want to share with you.
Vincenzo Mayor
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