Paxos wants to up USDP collateral backing for MakerDAO’s DAI stablecoin

Paxos has proposed a partnership with MakerDAO that will essentially increase the Paxos dollar (USDP) backing for the DAI stablecoin issued by the Maker protocol. Before it, Maker collaborated with Gemini, where the latter’s Gemini dollar (USDC) stablecoin was also collateral for the DAI.

Paxos wants to increase the USDP PSM debt ceiling to $1.5 billion

Paxos submitted a proposal to the MakerDAO governance forum calling for a partnership between both projects. The collaboration seeks to increase the volume of USDP in the PSM and generate marketing revenue for the DAO.

PSM is an acronym for peg stability module and is the mechanism by which Maker mints DAI in exchange for collateral submitted by users. Maker also uses the PSM framework to ensure that DAI maintains its peg to the US dollar such that 1 DAI is approximately equal to $1.

Paxos has called for an upward review of the USDP debt ceiling to 1.5 billion USDP ($1.5 billion) as part of the partnership. The debt ceiling on the Maker protocol provides an upper limit for the amount of DAI that a specific collateral type can mint. The partnership, if approved, will see the DAO earn up to $29 million in annual revenue from the USDP in the PSM vault. 

The Paxos proposal stated that increasing the USDP vault is a way to reduce the DAI’s exposure to the USDC stablecoin issued by Circle. USDC currently accounts for 30% of the collateral backing the DAI. Circle’s stablecoin is also the backing for 40% of all new DAI tokens minted on the Maker protocol. 

The MakerDAO community will discuss the pros and cons of the proposal over the next few days. Two votes will follow this process — a governance poll followed by an executive vote — before it can be approved for deployment on the Maker protocol. 

MakerDAO vote to limit GUSD exposure thwarted by VC interests

MakerDAO previously agreed to a similar arrangement with Gemini and its GUSD stablecoin. The initial arrangement was that the DAO would earn fees for any GUSD above the $100 million mark. This debt ceiling has since been increased to $500 million.

However, the recent troubles Gemini and its Earn program face put this partnership into question. The DAO recently held a vote to limit its exposure to Genesis. This vote seemed to be going through until the last minute when Parafi, a major Gemini venture capital backer, swung the vote to maintain the status quo.