TL: DR Breakdown
- Rune Christensen, a co-founder at Maker, the parent company behind stable coin DAI, has openly challenged two competitors.
- Christensen claimed that UST and MIM Stablecoins could collapse have in the case of a bear market.
Rune Christensen, a DAI co-founder, has claimed that two stablecoin projects are a scam. He contended that stablecoins MIM and UST are Ponzi schemes that can collapse to zero in a bear market.
Maker DAI’s optimization
Christensen revealed that he is getting weary of people asking him to comment on the two relatively young stable coins on Twitter.
Through a tweet, he said that he respects the fact that the two Stablecoins are solid ponzis, and people can even profit from them. However, he also warned that the coins run on systems that are not resilient enough and can collapse to zero if hit by a bear market.
He also explained that DAI is better than the duo since its systems are optimized for resilience. Besides, the crypto has trustable security features. Even with these claims, DAI remains second in market capitalization after UST overtook it last December.
The DAI collateralization
Even though DAI, UST, and MIM are decentralized stable coins, they have different software designs. DAI and MIM have a collateralized design. This design ensures that they use other assets as a backup if investors decide to start a sell-off spree. On the contrary, UST relies on algorithms that help maintain its peg via arbitrage incentives.
The criticism against the duo is that some of them are backed by centralized competitors. According to Christensen, DAI owes 37.4% of its collateralization to USDC. He also said that MIM could have a greater issue with this backing method as an even bigger portion of its reserves may be from centralized Stablecoins.
Stablecoins have gained popularity in the past two years. USDT, the largest stablecoin globally, increased its market cap from $20 billion in 2020 to almost $80 billion at the start of 2021. As a result, decentralized competitors also grew significantly.
One of the decentralized stablecoins that has had remarkable growth is UST. Its market cap has risen by over 50 times. MIM has also hit a market cap of $4.6B.
Despite the successes of these assets, many doubt their backing and functional designs. USDT, the largest asset in this category, has been on the spot for a long time regarding shady operations.
Recently, it asked the New York Supreme Court to keep its case proceedings confidential since it’s a private company. The ongoing case regards the undisclosed backing of USDT.
As a result of such scandalous developments, the US regulators plan to dawn on Stablecoins first. Therefore, the future development of their regulation is worth watching.