Stablecoin: a highly criticized proposal from the co-founder of Sky (formerly Maker)

Recently, the co-founder and CEO of Sky (formerly Maker) proposed a feature that would allow the freezing of the new stablecoin.

The rebranding of Maker to Sky and the historic stablecoin DAI

At the end of August, the rebranding of MakerDAO was announced, becoming Sky.

Even its famous crypto-collateralized stablecoin, DAI, will change its name to USDS.

For now, in theory, Maker DAO has already changed its name to Sky, even though almost everywhere the historic name is still used, while the stablecoin DAI has not yet changed its name. 

All MKR tokens can be converted into the new SKY tokens, while DAI will simply become USDS.

It is important to remember that in the past DAI changed, with the original stablecoin collateralized in Ethereum which became SAI, while the new stablecoin collateralized in various cryptos took the old name of DAI.

In reality, it is not just a simple aesthetic rebranding, but a true attempt to transform the protocol into a more decentralized ecosystem.

The proposal of Christensen 

In an attempt to transform the protocol into a more decentralized ecosystem, co-founder Rune Christensen made a proposal. 

Maker (now Sky) is a DAO, so the modification proposals must be approved by the community before coming into effect. 

The function proposed by Christensen, and strongly criticized by the community, is to introduce a token freezing function. 

The problem is that the freezing of tokens is a typical feature of crypto centralized projects, like USDT, while for a decentralized project it resembles heresy. 

Christensen revealed that the freezing function he would like to introduce on USDS (DAI) would still be much more decentralized than that available on centralized stablecoins, and that it could have a decentralized appeal process similar to that of a court. 

The thing, however, does not convince many, although even today all the important decisions of MakerDAO (Sky) are made precisely with votes by the community of MKR token holders.

The possible freezing function of the stablecoin USDS on Sky (Maker)

Freezing tokens means making them effectively unusable, locking them on the blockchain in an address that cannot be used. 

This means that those who own tokens that are frozen effectively lose them, because they can no longer use them. 

It is therefore very important who decides the freezing, and why. 

Christensen, however, clarified that the stablecoin USDS will not have a freezing function at the time of launch, but it could be added following a specific decision by a governance body. 

As it is easy to understand, this proposal has been fiercely criticized, because it lends itself to real political actions against someone, which is absurd to imagine within a decentralized system. However, it could be useful, for example, to prevent criminals from using stolen funds. 

How does the freezing process of the stablecoin USDS work?

Christensen, however, also pointed out that, unlike centralized projects, a truly decentralized decision-making process that led to the freezing of tokens would be at least public and transparent. 

For example, a user who sees their USDS frozen could leverage the power of decentralized governance to verify that the decision was the result of a fair process. 

This process for Christensen should go through decentralized governance to obtain a transparent reason on why the funds were frozen. 

His idea is that the decentralized protocol of Sky can make objective decisions on objective matters, simply by using fixed and public rules. 

The price of MKR

The price of the stablecoin DAI is always $1, and it should remain so even after the rebranding to USDS. 

Instead, the governance token of Sky, MKR, will not only change its name to become SKY, but it also has a variable price. 

Today it lost almost 5%, in line with the losses of Ethereum, but compared to, for example, seven days ago it is losing 12%, against the -3% of ETH. 

Even compared to 30 days ago it is losing 27%, while ETH is at +3%.

Yet 2023 had gone very well, with a rise from the bottom of the bear-market of $510 to $3,700 in March 2024. 

It had not managed to beat the all-time high of $6,300 from March 2021, but the great rise of 2023 had given a lot of hope. 

And instead, starting from mid-April, it began to decline, and this decline does not yet seem to have concluded. 

The current price of $1,600 is still much higher than the bottom of the bear-market, but it has returned to the levels of January, nullifying all the gains of 2024.