In the aftermath of the Treasury Department’s stunning decision Monday to ban Ethereum coin mixing tool Tornado Cash, many crypto industry leaders are reconsidering their exposure to centralized resources and products within the American government’s reach. 

Add to that growing list blue chip DeFi protocol MakerDAO. This morning, MakerDAO’s founder, Rune Christensen, announced via Discord that the organization will be entertaining discussions about whether to depeg its native, decentralized stablecoin, DAI, from USDCa dollar-pegged stablecoin issued by payments company Circle.

“I think we should seriously consider preparing to depeg from USD,” Christensen announced via the MakerDAO Discord earlier today. “It is almost inevitable it will happen and it is only realistic to do with huge amounts of preparation.” 

The policy reconsideration is a reaction to Circle’s decision earlier in the week to blacklist 38 wallets sanctioned in connection to the Tornado Cash ban. Circle froze any USDC present in these wallets in a move decried by privacy advocates as corporate compliance with overreaching and unjust government censorship. 

Circle was not technically compelled to freeze those funds according to the language of the sanctions, but as an American company, it did so in an abundance of caution to avoid the ire of the U.S. government. 

In a statement Tuesday, Circle founder Jeremy Allaire defended the move, while conceding the negative precedent it could set regarding user privacy, one of crypto’s holiest, founding principles. 

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“We know that complying with the law and helping to stop money laundering is both right and our obligation as a regulated financial institution,” said Allaire in a company blog post. “We also know that doing what is right compromised our belief in the value of open software on the Internet and our belief that the presumption and preservation of privacy should be enshrined as a design principle in the issuance and circulation of dollar digital currencies.”

MakerDAO’s native stablecoin, DAI, is currently predominantly collateralized by Circle’s USDC stablecoin. As a major DeFi protocol with a total value locked of almost $11 billion, the organization’s dependence on an asset clearly within the reach of American sanctions has come under scrutiny this week. 

DeFi is a catch-all term used to describe financial tools that enable non-custodial trading, borrowing, and lending of assets without third-party intermediaries. USDC is often used as collateral in DeFi, thanks to its reputation for stability. But as shown this week, that stability can come at the cost of centralization: USDC is itself collateralized by U.S. dollars (and its equivalents) and run by an American company that prioritizes adherence to American law. 

MakerDAO’s Christensen also today suggested a tactic of “uprooting,” which he clarified as the “yolo USDC into ETH approach.” 

Doing so would convert the majority of MakerDAO’s collateral into another cryptocurrency with no locked value, a move with potentially disastrous implications given the crypto market’s volatility. Christensen conceded “it is obviously suicide to yolo it all,” but added he believes that “the market may finally start to reward decentralization to the point where these risks are acceptable because USDC is no longer the no-brainer it used to be.” 

Other organizations have started to embrace that thinking. 

Ameen Soleimani, an early contributor to Tornado Cash, sees Circle’s move to comply with U.S. sanctions as a watershed moment in the history of decentralized finance. 

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“USDC blacklisting Tornado Cash was the DeFi equivalent to the US freezing several hundred billion dollars of Russian reserves, in terms of exposing the inherent liability of interacting with centralized U.S. counterparties,” Soleimani told Decrypt. “Even Europeans who were not personally in violation of sanctions had their funds frozen,” he said. “Every DeFi protocol is thinking about reducing their USDC exposure.”

Soleimani, who also runs blockchain-backed adult entertainment platform SpankChain, took to Twitter today to encourage MakerDAO’s divestment from USDC, by promising to follow through on an adult-themed commitment he’s made in that regard. 

Editor's note: This article was updated after publication to clarify that Ameen Soleimani was an early contributor to Tornado Cash, not a co-founder.

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