MakerDAO Co-founder Proposes “Endgame Plan” to Protect DAI From Attack

Rune Christensen, the co-founder of MakerDAO, has laid out his plan to convert the DAI stablecoin into a free-floating asset if the protocol fails to attain a 75% decentralized collateral level within three years.

Christensen’s “Endgame Plan” to Float DAI

The MakerDAO co-founder published a new post on the protocol’s governance forums on Tuesday, detailing his idea for a new plan that might eventually see the DAI stablecoin become a free-floating asset.

The proposal, titled “Endgame Plan timeline to free floating DAI,” emphasizes lending DAI against real-world assets (RWAs) to boost the protocol’s revenue. It suggests using the income from issuing loans to acquire additional ETH as collateral for DAI. According to Christensen’s strategy, the volume of ETH accumulated by MakerDAO over the next three years will indicate whether or not it should consider allowing DAI to deviate from its dollar peg and turn into a free-floating asset.

The concept contains three distinct collateral strategies, named Pigeon Stance, Eagle Stance, and Phoenix Stance, that range from significant RWA exposure to none at all. According to Christensen, more RWA exposure allows the MakerDAO protocol to grow faster but at the expense of less resilience.

The default stance of MakerDAO would be Pigeon Stance, the most liberal of the three strategies. With limitless exposure to RWA loans, it prioritizes maximum development. Eagle Stance strikes a balance between growth and resilience by restricting Maker’s RWA exposure to 25% of all loans. Phoenix Stance is the most conservative, requiring that the protocol have no significant RWA exposure.

The first step of Christensen’s proposal is to place MakerDAO in Pigeon Stance for three years. In this case, the protocol would try to accumulate as much ETH collateral as possible in order to make DAI resilient to “authoritarian threats.“

Such threats may include pressure from government authorities to comply with strict regulations or sanctions that force centralized stablecoin issuers, such as Circle, to freeze USDC funds held in MakerDAO’s vaults for noncompliance. Christensen previously expressed concern about MakerDAO’s reliance on USDC after the stablecoin issuer halted funds placed into privacy protocol Tornado Cash earlier this month. Christensen’s post reads:

If the protocol reaches 75% decentralized collateral organically from the accumulation of ETH during Pigeon Stance, then it can switch to Eagle Stance without resulting in DAI going free floating.”

However, if MakerDAO is unable to meet the 75% decentralized collateral requirement, it may be prudent to allow DAI to deviate from its one-to-one peg with the dollar. Christensen’s proposal stipulates that the DAI will continue to be tied to the dollar for at least the next three years, regardless of what occurs. If there is no “immediate authoritarian threat” after that point, the timeline for shifting DAI into a free-floating asset may likewise be extended.

MakerDAO and Regulation

The Endgame Plan is a part of a larger discussion on the MakerDAO forums about whether DAI may be pushed to leave its dollar peg in order to focus on decentralization. According to Christensen, as financial regulation shifts toward a “either you’re with us, or you’re against us” paradigm, paired with DAI’s intrinsic censorship resistance, the stablecoin will eventually need to de-peg from the dollar to avoid regulatory monitoring that it will be unable to comply with.

Christensen’s suggestion has met with some opposition. A MakerDAO member wrote:

I disagree that free floating DAI will be of much help. Why would an authoritarian government disallow fiat pegged stable assets, but permit free floating stable assets (or even volatile base crypto assets for that matter) when they still undermine government control over the monetary system?

However, some MakerDAO members were more in agreement with Christensen’s perspective. One user said:

It’s so good to finally see this recognized by weighty MKR voting power. I’ve been in the minority warning about this exact risk for years.

Because many DeFi users have grown to anticipate DAI to maintain its peg to the dollar, shifting away from this model, even if required, could be costly. With strong support both for and against allowing DAI to float, the discussion over how MakerDAO should prepare for an uncertain future is likely to carry on for some time.