The MakerDAO team has recently published a new proposal to DAO members regarding the allocation of reserve funds or treasury funds intended to be allocated to the new stablecoin owned by Ethena.Fi, USDe.
This proposal was launched a day before the Token ENA launch, which is the token of the Ethena.Fi platform. DAO members and the MakerDAO supporter community as a whole appear disappointed with this proposal and have rejected approval due to perceived high risks and negligence.
MakerDAO Proposal
The proposal provides details regarding the plan to allocate 1 billion DAI, valued at approximately $1 billion, for profit-seeking through the stablecoin Ethena named USDe.
The proposal outlines that 600 million DAI will be allocated to the Ethena platform to seek profits through USDe on its platform in the short term. However, there is an additional statement that the MakerDAO team is requesting approval for a 1 billion DAI allocation so that if the 600 million DAI is utilized effectively, there won’t be a need for another voting process, and the entire 1 billion DAI can be allocated directly.
The proposal includes details where 1 billion DAI will be allocated to various types of passive income features with USDe and sUSDe, which is the liquid staking token of USDe.
The statement refers to several types of “pools” or places where USDe and sUSDe are locked to seek passive income, with varying annual returns. There are two tokens involved in this strategy, USDe and sUSDe, so directly MakerDAO will be providing $1 billion to the Total Value Locked (TVL) of the relatively new Ethena platform.
The value of sUSDe and USD is relatively the same with slight differences due to volatility. To obtain sUSDe, users must lock USDe, so indirectly, 1 billion DAI will be exchanged for USDe if the proposal is approved by DAO members.
USDe Poses Potential Risk to DAI and MakerDAO
Currently, DAO members and the community as a whole appear disappointed as this move is considered too negligent and potentially self-serving. The self-serving narrative arises from the fact that Ethena has just launched its token ENA, and a $1 billion injection could increase Ethena’s TVL, potentially boosting sentiment for its token and thus potentially driving its price significantly higher when ENA trading sessions begin.
The narrative of negligence stems from two main facts: the novelty of USDe and Ethena and the unproven stability of USDe as an algorithmic stablecoin. USDe itself is backed by two assets: Ethereum in the spot market and short Ethereum contracts in the futures market.
USDe maintains its value through various means, ranging from minting mechanisms and exchanging USDe with ETH to trading in the spot market and staking with these assets, as well as opening and closing short positions in the futures market and leveraging arbitrage across platforms, all tied to assets linked with ETH. This is because initially, to mint USDe, users could do so by staking or exchanging it with ETH and various liquid staking derivative tokens, creating a strong tie to ETH.
This mechanism is also used to generate profits, allowing the USDe locking platform to provide annual returns to its users. Many are concerned that due to this mechanism, USDe may fall below $1, resulting in significant losses for MakerDAO.
These views are also influenced by the trauma from the UST case owned by Blockchain Terra, hence the community members do not seem to support this plan.
DAO Members’ and Community’s Disappointment
Several DAO members and community members have expressed their disappointment using Twitter (X).
One individual stated that this move is very disappointing as it will suddenly increase locked funds in Ethena, which can pose risks of lending and liquidity for DAI itself.
This sentiment was echoed by another individual who stated that this move is quite negligent as it means 20% of all DAI will enter Ethena, which is a new platform that still does not have a strong history of managing such funds.
The impact on DAI itself was emphasized by another individual who stated that there is a potential bubble or inflation of the debt relationship between DAI and USDe. This is because users can use USDe to borrow DAI and then use that DAI to buy USDe, and then use that USDe to borrow DAI again. This process can repeat, posing liquidity risks and significant systemic failures, making MakerDAO’s move appear quite reckless.
Lastly, another individual’s response predicted that such systemic risk conditions could lead to a significant correction in the crypto market similar to the UST incident from Terra.
Overall, this move is still considered reckless and may not be approved. However, given the ongoing governance process, there are still many possibilities for the future of Ethena, USDe, MakerDAO, and DAI.
