MakerDAO, one of the largest decentralized finance protocols, has approved an almost 80% reduction in its holdings of the stablecoin issued by the Winklevoss brothers’ Gemini Trust Co.
(Bloomberg) — MakerDAO, one of the largest decentralized finance protocols, has approved an almost 80% reduction in its holdings of the stablecoin issued by the Winklevoss brothers’ Gemini Trust Co.
The protocol will cut its $500 million Gemini stablecoin position by about $390 million. The members of this so-called decentralized autonomous organization approved the measure by 84% in a vote Thursday. The amount being cut is equal to about 70% of the token’s circulating supply.
MakerDAO cited liquidity issues and lower revenue from its GUSD holding compared to its other reserves such as Circle’s stablecoin USD Coin. It has laid out plans to move funds into assets such as short-term Treasury bills and corporate debt to capture higher returns.
“Trading volume is fairly low, and GUSD has fewer liquid DEX [decentralized exchange] and CEX [centralized exchange] markets versus other top stablecoins,” the protocol said in a proposal. “Reducing GUSD exposure could allow for better capital efficiency by deploying funds into higher revenue generating opportunities.”
MakerDAO uses digital assets as collateral to maintain the one-to-one dollar peg of its own stablecoin DAI. It is regulated by the DAO members who hold its governance tokens Maker.
The protocol is receiving 2% annually based on its daily average balance of GUSD, which is lower than the 2.6% rate of payments on USDC and potentially much higher returns from its deployment in other assets.
The decision is the latest setback for Gemini. The US Securities and Exchange Commission is suing Gemini as regulators crack down on the industry and the exchange’s market share has shrunk. And hundreds of thousands of Gemini customers have some $900 million worth of crypto deposits trapped in its defunct Earn product.
“You’d expect a lot of Gemini income comes from interest on the GUSD float,” said Jonathan Reiter, chief executive and data scientist at ChainArgos. “It’s certainly embarrassing and it’s probably a revenue issue for Gemini.”
A Gemini spokesperson didn’t immediately return a request for comment.
It is expected that GUSD would slowly flow out of the protocol in part based on arbitrage of the DAI, according to the proposal. “In the future it may be possible to forcibly liquidate GUSD from the PSM, but this would incur costs due to auction discounts, and is not deemed necessary or appropriate at this time,” the proposal said.
Stablecoins are key parts of the crypto sector where investors often park funds to use in trading. They are meant to hold a steady value, typically $1, and are often backed by reserves like cash and bonds. Regulators have stepped up scrutiny of stablecoins over concerns about the risks they can pose.
–With assistance from Yueqi Yang.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.