A series of liquidations forced MakerDAO to spend half of the $500 million it holds in a Coinbase Custody account to protect the peg for its DAI stablecoin.
DAI’s USDC reserves – which had to be at least $200 million to be considered safe – nearly fell below $60 million on Tuesday morning before the manager of Maker’s Coinbase trust transferred $250 million to DAI’s so-called peg stability module (PSM).
The liquidity fire drill highlighted the permitted process by which the largest decentralized stablecoin replenishes its reserves.
The PSM is a collateral pool that allows users to earn USDC to DAI 1:1 and arbitrage DAI back to the dollar peg. If the PSM’s reserves are depleted, the price of DAI could drift above or below the dollar.
“The most likely outcome is that nothing of note happens. The worst outcome would be a disconnect from DAI for a few minutes to a few hours. But you would observe the USDC flows on the relevant Coinbase addresses. The USDC should arrive any minute,” PaperImperium, the board liaison at GFX Labs, said in a direct message.
Read more: MakerDAO continues to hold on to the USDC reserve despite calls for diversification
A Maker community member noted on Saturday that the PSM’s funds had fallen below $300 million, which should lead to a transfer of Maker’s $500 million Coinbase Custody account. Allan Pedersen, CEO of DeFi lender Monetalis, then commented several times on the forum asking trust management company SHRM to fund the PSM.
Monetalis was also required to email and call SHRM about the forum post, according to a Maker document detailing the process.
More than $100 million left the PSM between Sunday and Tuesday before the Coinbase Custody transfer arrived. A source familiar with the matter told Blockworks that the larger transfers appeared to be going from the PSM to centralized exchanges.
On the Maker forum, Pederson wrote that teams are working on automating the PSM using smart contracts, “but for now the instruction-based automation using trustees, administrators, legal structures, and banks/central exchanges is secure and stable.”