‘We should be ready for the worst’ — MakerDAO founder is not optimistic about the stablecoin regulation in 2022
- The founder of
MakerDAO, Rune Christensen, believes people should “be ready for the worst” when it comes to stablecoin regulationin 2022.
- According to him, ‘super countries’ like Canada, Australia, New Zealand, the UK and other climate resilient nations, will be more
stablecoinfriendly than the US in the future.
- Christensen recently dissolved the
Maker Foundationand wants MakerDAO to champion for climate change.
Rune Christensen, founder of MakerDAO, believes that stablecoins may be in for a rough year ahead. Marking his return to the MakerDAO community on Reddit, Christensen held an Ask Me Anything ( AMA) session on the forum where he was asked about the future of stablecoin regulation in 2022. And, his response was to “be ready for the worst,” especially when it comes to the US.
After dissolving the Maker Foundation, to make the
“We need to set up legal core units and government relations core units for each of these places [super countries], and once we have those in place, we should be able to get a proper assessment of how safe our collateral would be.”
According to him, once MakerDAO finds locations from where it starts to implement large scale real world projects, the company will be politically impossible to shut down — as long these bases are set within countries with “good political environments.”
The regulatory landscape for stablecoins is ‘very hard to predict’
Stablecoins like Libra and Tether have caught the eye of global regulators primarily due to concerns over how the companies behind them manage the reserves that back them, especially since these stablecoins serve the purpose of a bridge between the world of cryptocurrencies and the traditional economy for many investors.
“It’s very hard to predict, especially because there are two aspects to that question, both what’s going to happen to stablecoins in general… and then what’s going to happen to decentralised stablecoins like DAI.”
Most stablecoins, like Tether and Libra, are ‘hard-pegged’ to the US dollar — they’re backed by the actual fiat currency. MakerDAO’s DAI stablecoin, on the other hand, is ‘soft-pegged’ to the US dollar. This means that while it maintains its value with respect to the fiat currency, it’s not actually backed by it. Instead, it’s backed by other cryptocurrencies.
The need for stablecoin regulation
Stablecoins are meant to offer ‘stability’ like their name suggests. The idea is that 1 token will be worth $1, a hundred tokens would be worth $100, and so on.
Tether, for instance, is not backed by actual US dollar reserves. Instead, it is backed by commercial paper — short term debt issued by companies to raise funds — most of which is speculated to be out of China.
Even though the company behind the largest stablecoin on the market did come out to say that it doesn’t have any exposure to Evergrande — China’s real estate behemoth that is currently struggling to pay its $300 billion debt — there are still other Chinese companies that may be at risk due to the ripple effect put into motion by Evergrande’s downfall. And, that’s only the tip of the iceberg when it comes to the reserves backing Tether.
Last year in March, MakerDAO found itself in hot water as well when the price of Ether — the native token powering the Ethereum blockchain and the backbone of MakerDAO’s decentralised finance (DeFi) platform — went for a nosedive. It went from being worth $193 to $95 in less than 24 hours.
The resulting chaos over transaction fees led to $8.32 million of Ether being liquidated off the platform for free. The event even got its own name — ‘ Black Thursday’.
For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.
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