On Tuesday, September 6th, a proposal to transfer a significant portion of MakerDAO’s Peg Stability Module (PSM) to Coinbase was published. The aim of such a move would be to increase the DAO’s revenue by taking advantage of Coinbase’s custody reward program.
MakerDAO’s Coinbase Proposal Explained
The idea of the proposal is to transfer 33% of MakerDAO’s Peg Stability Module (PSM) to Coinbase. Considering that the PSM holds $1.6 billion, this move would place $528 million in USDC into Coinbase custody with plans to earn a yield from the transfer.
This proposal responds to MIP13, wherein MakerDAO governance requested that collateral assets be deployed in a manner that incorporates evaluative criteria of: safety, cost structure, and flexibility. Coinbase is uniquely situated to offer a USDC Rewards Program to MakerDAO that meets this evaluative criteria. Specifically, Coinbase is an established, reputable, and regulated company.
The proposal further explains that Maker and Coinbase have a long-standing relationship and that a large portion of the DAO’s balance sheet is already exposed to USDC. Coinbase’s program would offer a 1.5% yield to Maker, which would amount to revenue of around $24 million.
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What Does Maker’s Community Think About the Proposal?
Considering that the proposal is very new, there isn’t a completely clear consensus on it within the community. Many of the comments in the discussion find it to be a good idea for the DAO. Some of the merits of the idea are explained to be the fixing of the DAO’s underinvestment and the diversification of assets with a lower-risk investment.
On the other hand, the recent increased law-enforcement activity in the crypto sphere—which gave Tornado Cash’s DAO among others a lot of trouble—appears to be raising some concerns:
Do you understand that moving the USDC to Coinbase will add yet another regulatory attack vector that the DAO needs to worry about? Circle won’t even need to blacklist the PSM any more. The government can just force Coinbase to seize the funds and kill DAI instantly. So much easier for the government to understand. Fits so much more neatly into existing framework than creepy “blacklisting”.
Adding to these concerns is the fact that Coinbase recently found itself in trouble with the government. Others have also raised the question of whether such a move would be in accordance with the Endgame Plan timeline to free floating Dai which includes the eventuality of an external attack on the DAO.
So far, the prevailing sentiment appears to be that this move would ultimately benefit the DAO: “Does this solve all our problems? Obviously not, but the risk profile is roughly the same and we get a lot of revenue. It’s a win.”
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Do you think that transferring 33% of its PSM to Coinbase would be a good move for the DAO? Let us know in the comments below.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.