MakerDAO Votes to Ditch $500M in Paxos Dollar Stablecoin From Reserve Assets

The result is a significant blow for Paxos as MakerDAO currently holds roughly half of USDP’s total supply.

AccessTimeIconJun 1, 2023 at 4:16 p.m. UTC
Updated Jun 1, 2023 at 7:08 p.m. UTC

Decentralized finance (DeFi) lending protocol MakerDAO’s community has voted to ditch $500 million Paxos Dollar (USDP) stablecoin from its reserves, impacting half of the token’s supply.

Voters unanimously favored to decrease the debt ceiling for USDP to zero from $500 million, according to a vote concluded Thursday.

The decision has a significant impact on embattled stablecoin issuer Paxos, as Maker’s treasury holds roughly half of USDP’s $1 billion supply. This comes after New York state regulators forced the company in February to halt minting Binance USD (BUSD), another Paxos-helmed stablecoin. The market capitalization of BUSD has cratered to $5 billion from $16 billion since then, according to CoinGecko data.

MakerDAO, issuer of the $5 billion DAI stablecoin and one of the largest lending protocols in DeFi, is aiming to boost its revenues by investing its vast reserves in yield-generating strategies.

Gemini, issuer of the GUSD stablecoin, pays an incentive to MakerDAO for holding its stablecoin, while MakerDAO will soon earn a 2.6% yield on as much as $500 million of USDC from Coinbase Prime. The protocol also increasingly invests in real-world assets (RWA) such as tokenized short-term U.S. Treasury bonds via investment management firms.

The proposal for booting USDP argued that holding the stablecoin does not accrue revenues for MakerDAO, hurting its capital efficiency as the protocol prepares to hike rewards rate for its own stablecoin, DAI.

“While Paxos has raised the possibility of a marketing fee scheme, to date there has not been concrete progress towards implementing this,” per the proposal. “If marketing payments are eventually implemented, Maker would be able to increase USDP debt ceilings in response.”

Edited by Nelson Wang.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.