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The stablecoin world has been tossed in the tumble dryer in the last week or two.
Last week, there was a shocking announcement that BUSD would be suspended following the SEC crackdown on New York-based issuer Paxos (detailed story and implications here).
This has given rise to new concerns about centralized stablecoins and feels like the perfect time to check in with DAI, the leader in decentralized stablecoins. So he, the creator of the DAI stablecoin, spoke with Sam MacPherson, who is in charge of protocol engineering at MakerDAO.
Sam and I talked about the recent storm involving BUSD and its potential implications for other US coins such as USDC going forward. We discussed the implications for the decentralized world and whether this will affect the big centralized versus decentralized debate.
We also talked about Tether, which has exceeded 50% market share for the first time since November 2021. Of course, it’s hard to talk about the tether, and I can’t help but mention the scarcity of reserves. This is perhaps the most obscured (and he is one of the most important) topic in the history of cryptocurrencies.
DAI has been criticized for its need for excessive collateral. This is a trade-off that must be made given the extreme volatility that cryptocurrencies offer, and DAI is secured by it. I asked Sam about this criticism and if it might change in the future.
We also talked about decentralization itself. The underlying collateral for DAI consists of concentrated assets, including USDC. While this may seem crazy for a “decentralized” asset, there are times when practical utility needs to prevail. We are discussing what this means and why it will always be this way.
Then there’s the yield case. This is possible given the amount of DAI collateral held in T-bills which suddenly becomes very lucrative in this high interest rate environment. Sam discusses the potential for this yield to seep into his DAI holders.
Speaking of DAI holders, they were also discussed at length: I wanted to know why you would choose $100 DAI over $100 centralized stablecoins.
All in all, it was an incredibly topical conversation given the current turmoil in the stablecoin market. BUSD seems doomed, but who knows what will happen to USDC. Currently, DAI is the fourth largest by market capitalization, making him the dominant decentralized leader. If you are interested in stablecoins, you may find this episode interesting.
