Exponential, an funding platform for crypto holders, has downgraded MakerDAO’s DAI pool danger score from Low to Medium, based on the most recent data shared with Finbold on August 9.
The choice is consistent with Exponential’s current collateral technique and growing reliance on real-world property (RWAs), and is coupled with the platform’s current determination to additionally downgrade the USDA stablecoin.
Crypto overcollateralization with MakerDAO
MakerDAO permits customers to take out loans by over-collateralizing with cryptocurrencies.
Initially, DAI was largely supported by property akin to Ethereum (ETH) and Wrapped Bitcoin (WBTC), which provided an over-collateralization mannequin and saved dangers comparatively low.
Nonetheless, analysts at Exponential have raised issues about MakerDAO’s shift towards together with risk-weighted property within the collateral combine.
In an interview with Investing.com, Exponential co-founder Mehdi Lebbar summarized the issues, saying:
“Maker’s transfer to incorporate real-world property (RWAs) in its collateral combine represents a big departure from its unique single-asset mannequin. This diversification, whereas engaging in a excessive rate of interest surroundings, introduces new layers of danger that have to be addressed.”
Lebbar additionally emphasised the significance of serving to the decentralized finance (DeFi) group perceive how these property generate returns and the potential implications if RWA-backed vaults don’t carry out as anticipated.
Rising returns with RWAs
The introduction of RWAs permits MakerDAO to supply an 8% return on its DAI Financial savings Charge (DSR).
Nonetheless, it exposes DAI holders to larger counterparty dangers, particularly in terms of authorized preparations and transparency.
A current report notes that RWAs now account for nearly 30% of DAI’s complete protection, and even when they make up a smaller portion of complete collateral, there have already been 4 defaults in smaller RWA vaults.
Exponential analysts warn that comparable issues in bigger vaults may set off a financial institution run, probably destabilizing DAI’s 1:1 peg to the U.S. greenback.
Lebbar urged that enhancements in collateral high quality may probably mitigate some dangers, however he cautioned towards additional reliance on decrease high quality collateral with out strict danger controls.
Downgrade of USDA stablecoin
The USDA danger score has additionally been downgraded from Lowest to Low because of issues about collateral assist, particularly the heavy reliance on the Morpho Blue protocol.
Greater than 50% of USDA reserves (roughly $17 million) are deposited in Morpho Blue, a comparatively new and fewer examined cash market, a focus of property that carries important danger.
This discount additionally is available in gentle of previous points such because the March 2023 Euler hack, which affected $17.6 million of Angle’s USDC reserves, highlighting the dangers of counting on exterior protocols for collateral administration.
With the evolving nature of the DeFi house, new vulnerabilities could come up, and Angle’s reliance on Morpho Blue will increase the potential for losses, posing dangers to USDA’s stability and liquidity.