Exponential, an funding platform for crypto holders, has downgraded MakerDAO’s DAI pool danger score from Low to Common, based on the newest data shared with Finbold on August 9.
The choice is according to Exponential’s current collateralization technique and growing reliance on real-world belongings (RWAs), and it’s accompanied by the platform’s current resolution to downgrade the score of the USDA stablecoin as nicely.
Crypto overcollateralized with MakerDAO
MakerDAO permits customers to take loans by overcollateralizing with cryptocurrencies.
Initially, DAI was principally backed by belongings equivalent to Ethereum (ETH) and Wrapped Bitcoin (WBTC), which supplied an overcollateralized mannequin and saved dangers comparatively low.
Nevertheless, analysts at Exponential have expressed considerations with MakerDAO’s shift towards incorporating RWAs into its collateral combine.
In an interview with Investing.com, Exponential co-founder Mehdi Lebbar summarized the priority, stating:
“Maker’s transfer in the direction of incorporating real-world belongings (RWAs) into its collateral combine represents a big departure from its authentic single-asset mannequin. This diversification, whereas interesting in a high-interest price surroundings, introduces new layers of danger that should be addressed.”
Lebbar additionally emphasised the significance of constructing the decentralized finance (DeFi) group perceive how these belongings generate yield and the potential implications of RWA-backed vaults failing to carry out as anticipated.
Growing yield with RWAs
The introduction of RWAs has allowed MakerDAO to supply an 8% yield on its DAI Financial savings Price (DSR).
Nevertheless, it exposes DAI holders to higher counterparty dangers, particularly on the subject of authorized preparations and transparency.
A current report notes that RWAs now make up almost 30% of DAI’s whole backing, and even when they’re a smaller portion of the general collateral, there have already been 4 defaults in smaller RWA vaults.
Exponential analysts warn that comparable points in bigger vaults may set off a financial institution run, doubtlessly destabilizing DAI’s 1:1 peg to the US greenback.
Lebbar urged that enhancements in collateral high quality may doubtlessly mitigate some dangers, however he cautioned in opposition to additional reliance on lower-quality collateral with out inflexible danger management.
USDA stablecoin downgrade
The USDA danger score has additionally been downgraded from Lowest to Low resulting from considerations about its collateral backing, particularly its heavy reliance on the Morpho Blue protocol.
Over 50% of USDA’s reserves (round $17 million) are deposited in Morpho Blue, a comparatively new and less-tested cash market, a focus of belongings that introduces a big danger.
This downgrade additionally is available in gentle of previous points, such because the March 2023 Euler hack, the place $17.6 million of Angle’s USDC reserves had been affected, which highlighted the dangers of relying on exterior protocols for collateral administration.
With the evolving nature of the DeFi area, new vulnerabilities can emerge, and Angle’s reliance on Morpho Blue will increase the potential for loss, posing dangers to USDA stability and liquidity.
