MakerDAO could back a billion Dai with Ethena’s ‘synthetic dollar’ USDe

Yesterday’s MakerDAO proposal to mint up to one billion Dai via Ethena’s USDe and sUSDe collateral is proving controversial.

Coming just three days after a $100 million trial run was rapidly snapped up by users looking to ‘loop’ leverage and multiply Ethena’s (already outsized) yields, concerns have been raised over the speed at which Dai itself would become exposed to a brand new asset.

Skeptics say the move will port the underlying risks of Ethena’s new ‘synthetic dollar’ to Dai, which is widely used across decentralized finance (DeFi), leading to worries of a potential depeg which could create systematic risk throughout the sector.

Read more: Ethena offers 27% on stablecoins but where is the yield coming from?

As stated by Maker delegate and risk consultant monet-supply, the vault would start with a cap of 600 million Dai, which could be adjusted up to 1 billion according to demand and risk assessments.

Despite the staggered approach, 600 million Dai isn’t exactly small change with the total amount of Dai minted from USDC currently totaling approximately 600 million according to data from MakerBurn. Others have called the move “reckless,” especially given how recent Ethena’s product is.

Shortly after posting the above, Aave governance delegate Marc Zeller went on to author a proposal on Aave’s forum citing “the unpredictability of future governance decisions by MakerDAO” as a worry concerning Dai’s future potential impact on Aave. 

He proposes reducing Dai’s loan-to-value (LTV) to zero, making it unable to be used to borrow on Aave, as well as exempting Dai from Aave’s rewards program, Merit. Recognizing this may be polarizing, the resulting vote may contain both conservative and aggressive options.

However, Zeller’s criticism may also be influenced by the protocol via which the Dai is being issued, Aave-competitor Morpho. In February, Zeller proposed cutting certain Morpho users out of Merit rewards. The following week, long-time Aave risk advisors Gauntlet Network jumped ship to Morpho.

Zeller was even accused of hypocrisy, given that Aave governance is in the process of discussing onboarding sUSDe collateral. However, the ‘differentiators’ are elements of risk management and the size of the caps, according to Aave founder Stani Kulechov and Zeller, not the use of Ethena’s collateral in itself.

Other key figures have commented on the issue, with Alchemix’s @scupytrooples pointing out the damage a USDe depeg could do to all the DeFi products relying on Dai.

Read more: Advisors leave Aave as protocol punishes competitors 

Inverse Finance founder Nour Haridy also points out that Maker may be shooting themselves in the foot by pushing the risk profile of Dai.

But last month, Maker’s founder Rune Christensen defended the idea of using Ethena assets as collateral. Christensen is seemingly willing to write off the risk of centralized exchanges (CEX) blowing up, a la FTX, and instead rely on the use of custodians. 

Ethena currently has 49% of its collateral being used to trade on Binance, almost certainly custodied at Binance-affiliated Ceffu. Binance and its chief exec, Changpeng Zhao, recently pleaded guilty to felony financial crimes. The remainder is being used at ByBit, Deribit, and OKX, custodied at Copper and COBO.

BlockTower has a separate MakerDAO proposal for it to deploy USDC into the Ethena ecosystem. However, GFXLabs pointed out that the fee BlockTower proposed it should be paid seems to be against Maker policies.

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