Based on its description, the USDS stablecoin will have a function that allows its issuer to freeze the token.
Popular Decentralized Finance (DeFi) protocol MakerDAO recently experienced a major shift in its ecosystem. However, the new development has attracted some backlash from its community members. The collateralized debt protocol rebranded to Sky on Tuesday and announced plans to deploy its stablecoin dubbed USDS and a governance token SKY on September 18.
Community Members Question USDS Freeze Function
With Sky, the protocol plans to offer a simpler user experience and involves launching a new website and app. The debut of these new tokens will not impact Dai (DAI) stablecoin and the MKR token, as they will remain in existence. This will allow users to upgrade to the new tokens voluntarily. A unit of MKR is equivalent to 24,000 SKY tokens, while DAI will convert to USDS on a one-to-one basis.
Based on its description, the USDS stablecoin will have a function that allows its issuer to freeze the token. As soon as some netizens observed this clause, they highlighted that it could bring into question the decentralization of the protocol. Monad marketer “Tunez” took to X to challenge the freeze function.
“Doesn’t this completely defeat the purpose of the project? Am I missing something here?” Tunez asked his followers.
Noteworthy, Sky founder and CEO Rune Christensen had earlier claimed that no freeze function was coming at the stablecoin launch but a protocol upgrade. He continued by pointing out that governance could decide how to implement something like a freeze function in the future.
This is misleading, as Dai will continue to function just as before, and can still be used. Upgrading to USDS is optional, and it is only USDS that will have a freeze function. Dai is an immutable smart contract and cannot be altered.
— Rune (@RuneKek) August 27, 2024
This would be “based on considering all data and finding something that protects against as many risk factors as possible.”
MakerDAO Users to Choose Between DAI and USDS
A few months ago, Christensen described the new tokens Maker planned to launch. He noted that once the freeze function is activated, it is generally expected to “follow the rule of law from jurisdictions where Maker needs a high level of certainty that the legal system will enforce recourse against RWA [real-world asset] collateral.”
Adam Cochran, Cinneamhain Ventures Partner, believes this move is core to backing the USDS by the United States Treasuries. Beyond requiring a freeze function to get T-bill yield backing, Cochran opines that Maker would need a VPN jurisdiction blocker equally. Meanwhile, this freeze function does not apply to DAI.
Speaking on what to look forward to, Christensen says:
“Dai is an immutable smart contract and cannot be altered.”
This new development is perceived as a strategy for Maker to fulfill its “Endgame” roadmap, which was revealed in Q1.
Upon its launch, the lending platform claimed that the initiative’s primary objective is to increase the protocol’s Dai stablecoin supply to a substantial 100 billion tokens. The two tokens, initially called NewStable and NewGovToken, are scheduled to launch in the summer of 2024.
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