Thread by @MakerDAO

We would like to update our community on the recent market situation that temporarily affected the DAI price.

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1) A summary of the recent events:

On March 10, regulators took over Silicon Valley Bank (SVB) due to a liquidity crisis.

Circle disclosed that $3.3 billion of USDC reserves were deposited in the bank and couldn't be accessed due to weekend closure.

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As a result, the stablecoin market experienced a USDC sell-off over the weekend, leading to a slight depeg of USDC, affecting DAI’s price.

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Maker’s Peg-Stability Module (PSM) enables DAI-USDC swaps at a 1:1 fixed ratio and backs minted DAI with deposited USDC.

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SVB exposure led to increased USDC inflows in the PSM, causing MakerDAO's USDC exposure to double to $4B over the weekend, which also affected DAI's price due to PSM's 1:1 fixed exchange rate.

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2) Immediate actions:

An emergency vote proposed by the Risk Core Unit on Saturday, March 11, and executed on Monday, March 13, deployed a set of parameters to limit Maker’s exposure to USDC and encourage diversification of PSM’s stablecoin assets.

https://twitter.com/MakerDAO/status/1635329593384083477?s=20

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Additionally, this emergency vote reduced the Governance execution delay from the usual 48 to 16 hours, enabling Maker Governance to implement future changes faster.

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The Risk Core Unit proposed a second executive vote, which is currently being voted on by Maker Governance and if approved, is expected to execute the following change 16 hours from the time of approval:

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• Implement a circuit breaker to deactivate all PSMs with an instant governance action that will be able to be executed immediately after governance approval.

https://twitter.com/MakerDAO/status/1635666317398163458?s=20

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By employing the circuit breaker, Maker Governance will instantly set a specific PSM debt ceiling to zero if market conditions increase the risk of holding a specific stablecoin, thus preserving the DAI price.

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3) Future measures to reinforce the DAI stability:

Going forward, MakerDAO Core Units are considering multiple proposals to limit MakerDAO’s exposure to centralized stablecoins, such as:

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• Introducing PSM market-price swaps and redemption curves that will slow down the 1:1 swaps during times of emergency.

forum.makerdao.com/t/automating-a…

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• Switching a considerable portion of stablecoin reserves towards money market assets like US Treasury bonds, which are highly liquid assets and would be ready to protect DAI’s price in case of a sell-off event.

forum.makerdao.com/t/request-to-p…

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By further diversifying its reserves towards real-world assets and bonds, MakerDAO will increment its control over DAI’s liquid backing.

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This diversification approach will expand MakerDAO's revenue channels and create opportunities to increase the Dai Savings Rate (DSR) and distribute those earnings to DAI holders.

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Since its deployment in 2017, the Maker Protocol has demonstrated exceptional resilience with many stress tests.

The past weekend's test further reinforced the value of the open-source, autonomous, and decentralized code governing DAI stability.

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Even after witnessing the DAI peg recovery, the MakerDAO community is prepared to evaluate and propose changes and improvements to the protocol to further enhance DAI’s reliability.

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The Maker Protocol was designed to enable these improvements to be deployed in accordance with a decentralized governance model governed by MKR holders, whose incentives are aligned with making favorable decisions for DAI holders.

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