The DAO founder sees a new era ahead for DeFi, and it isn't pretty, he told CoinDesk TV’s “First Mover” program
The decentralized finance (DeFi) ecosystem should prepare itself for a more adversarial relationship with regulators, warned Rune Christensen, founder of MakerDAO, the decentralized autonomous organization behind the DAI stablecoin.
Christensen told CoinDesk TV on Thursday the U.S. Treasury Department's sanctioning coin mixer Tornado Cash may be ushering in “a new era for DeFi.” On Monday, the agency designated this Tornado Cash, a critical component of the Ethereum ecosystem, as a “national security risk.” The announcement almost immediately cast a large shadow over the crypto industry.
The Treasury move “opened the door to the possibility of any protocol getting a sanction,” Christensen said on CoinDesk TV’s “First Mover” show. Because Tornado was at the center of so much economic activity on the Ethereum blockchain, DeFi apps now need to look at their exposure to Tornado and potentially change course.
“Decentralization has been more of a meme than reality for many projects,” Christensen said.
This week, members of the MakerDAO community began preparing a “contingency plan” in case its “core” wallets are affected by the sanction. Of particular concern is the large amount of USDC, a stablecoin issued by the regulatory-compliant Centre Consortium. Maker holds USDC as collateral on DAI, its U.S. dollar-denominated cryptocurrency.
Circle, one of the entities behind USDC, immediately blacklisted 38 Ethereum addresses to comply with the Treasury’s sanction, while a host of so-called permissionless apps like dYdX, Aave and others have begun freezing user’s funds if there is even a marginal connection to Tornado.
This increases the pressure on Maker, Christensen said. Maker allows anyone to mint DAI by lending cryptocurrencies to the application. More than a third of DAI is backed by USDC, while about a quarter of its reserves are in ether (ETH). If that ETH or USDC is found to have interacted with Tornado, it could be frozen – leaving Maker with a shortfall
Christensen said regulated stablecoins like USDC have “proliferated” across DeFi because they were very safe, liquid and easy to integrate. But there’s a natural “tension” between “centralized” stablecoins and projects like DAI that want to be permissionless and uncensorable.
The decision to lean on USDC allowed Maker to grow and focus on an easy user experience, but it came with “tradeoffs” that are now fully visible, Christensen said.
.jpg)
