The MakerDAO community is voting on keeping Gemini’s GUSD stablecoin as part of the protocol’s reserves amidst insolvency concerns.
MakerDAO and its community are concerned about DAI’s exposure to Gemini in the face of the liquidity crisis impacting the platform’s Earn program.
A Critical Vote
The MakerDAO community has started voting on two governance polls that look to limit the exposure of the DAI stablecoin to Gemini. The polls are a result of the liquidity crisis plaguing Gemini’s Earn program, where users have been unable to access their assets. Gemini’s GUSD stablecoin is one of the assets that can be used as collateral to mint the DAI stablecoin issued by Maker. Maker and Gemini announced a partnership in September 2022, which saw Maker earn 1.5% when GUSD in Maker’s Peg Stability Module (PSM) went beyond $100 million.
PSM is the mechanism that allows users to mint DAI for collateral accepted by the Maker protocol. It also helps maintain DAI’s peg with the US Dollar.
GUSD Close To Debt Ceiling
As of now, the GUSD collateral in Maker stands at $489 million against its debt ceiling of $500 million, which is the maximum amount of DAI that can be minted using the Gemini Dollar. The MakerDAO community has repeatedly flagged concerns about the DAI stablecoin’s exposure to Gemini, especially after the insolvency concerns that have sprung up, thanks to Gemini Earn’s $900 million locked with crypto lender Genesis, which has paused withdrawals.
However, Genesis CEO Tyler Winklevoss has tried to put the Maker community at ease, stating in a post made on the Maker Forum that MakerDAO’s exposure to Gemini was restricted to the GUSD in the Peg Stability Module. Furthermore, Winklevoss added that the GUSD reserve backing the DAI stablecoin would not be part of any bankruptcy proceedings.
Details Of The Voting Process
The concerns around DAI’s exposure to Gemini prompted the governance votes by the MakerDAO community. The first vote will decide the setting of the tout, which is the percentage fee for swapping the DAI stablecoin back into the collateral asset for the GUSD vault to zero. This would mean users can swap DAI back to GUSD at no cost. The second vote is to reduce the GUSD debt ceiling.
The votes will end on the 19th of January, and current voting trends have shown that the community is in favor of setting the tout to zero. These governance polls are the first step in MakerDAO’s voting process. Following this step, the vote will move on to an executive vote before its implementation on Maker.
Current Voting Trends
With the vote ongoing, current trends have indicated that the MakerDAO community heavily favors keeping the GUSD stablecoin as a part of Maker’s reserve assets. The vote is considered a test of confidence in Gemini, which has been swept up in the ongoing crypto contagion. Voters are voting to keep the GUSD debt ceiling as it is at $500 million or reduce it to $100 million, or zero, effectively removing GUSD from Maker’s reserves.
At the time of writing, an overwhelming 77.72% of the votes are in favor of leaving the GUSD ceiling unchanged at $500 million. 22.28% have voted to boot GUSD from the Maker reserve entirely by setting the debt ceiling to zero. With the voting ongoing, these figures may change by the time the voting ends on Thursday.
Growing Concerns
The vote comes amidst growing pressure on GUSD issuer Gemini, with the platform halting withdrawals from its Gemini Earn program and due to a lawsuit filed by the US Securities and Exchange Commission. The SEC alleges that Gemini Trust and Genesis Global Capital sold unregistered securities to customers through the Gemini Earn program.
With the current situation between Gemini and Genesis impacting its Earn program, investors have grown increasingly concerned that the GUSD may destabilize, dragging Maker’s DAI stablecoin into the conundrum. MakerDAO currently holds around 85% of all GUSD in circulation, making the stablecoin extremely reliant on its relationship with Maker. There are also concerns about GUSD being partly backed by funds held at Silvergate Capital, which has also been impacted by the fallout in the crypto markets, specifically the fall of FTX. Analysts at digital asset research firm Kaiko, Riyad Carey stated,
“Recent MakerDAO governance discussions have raised concerns about GUSD’s heavy reliance on the PSM and Gemini holding GUSD reserves at Silvergate.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.