The most fundamental characteristic of a stablecoin is its ability to maintain a stable value pegged to a fiat currency. However, maintaining this stability is easier said than done. A prime example is MakerDAO’s move to switch from its existing stability mechanisms to the Spark Protocol.
As previously reported by Blockworks, the Spark Protocol aims to give users access to a wholesale DAI credit line directly injected from MakerDAO. The protocol will eventually become a “sub-DAO” in Maker’s Endgame update. The change, set to improve DeFi liquidity and stablecoin resilience, comes after lessons learned from the recent USDC depeg.
The depeg of Circle’s USDC stablecoin occurred following a series of crypto-friendly bank failures. This event showed the necessity for preventive measures like a ‘kill switch’ to stop the bleeding. Following the depeg, MakerDAO has added a kill switch. In the case of another depeg event, the peg stability mechanism (PSM) will be shut off, as Maker does not want to act as a lender of last resort.
Another change on the horizon involves direct depositing on automated market makers (AMMs), intended to inject liquidity straight into DEXs. According to Sam MacPherson, the co-founder and CEO of Phoenix Labs, which contributes to building the Spark Protocol, depositing directly to DEXs results in better rates. The strategy allows Maker to act as the taker in the market-making process rather than resorting to intermediate arbitrage. MacPherson believes that liquidity deposits should not be limited to just one DEX and that Maker should adapt to and supply liquidity wherever users are.
While some may argue that a less centralized stablecoin like MakerDAO’s DAI poses risks, others will point to the fact that it represents an example of a valuable decentralized stablecoin. As users increasingly adopt layer-2 solutions and other chains, Spark Protocol’s competitive advantage lies in its ability to launch on a variety of layer-2 protocols, as MacPherson highlights. This feature ensures that an instance of Spark is present regardless of the chain in use, offering users the same borrowing rate on any chain.
The MakerDAO ecosystem is continuously working to enhance its stability mechanisms and functionality to better serve users, with the Spark Protocol taking center stage. While skeptics question the stability of decentralized stablecoins, instances like the USDC depeg recovery and MakerDAO’s actions to address its shortcomings demonstrate their resilience and ability to adapt in an ever-changing market landscape.
Source: Blockworks
