Gauntlet Proposes Deprecating Mai Stablecoin on Aave Protocol
The crypto risk assessment firm Gauntlet has suggested to the Aave community that they deprecate the decentralized stablecoin Mai (MIMATIC) on the lending protocol. This recommendation comes as a result of the ongoing depeg issue faced by the stablecoin. Over the past few weeks, the price of Mai has seen a significant decline, dropping from $0.88 at the start of October to $0.72 today. Currently, it is trading at $0.78 according to CoinGecko data.
Proposal for Deprecation
In response to this situation, Gauntlet has proposed to Aave’s governance unit that they initiate the deprecation process for Mai by reducing loan terms and increasing borrowing rates. Gauntlet estimates that this move would lead to approximately $70,000 in forced liquidations. The proposal states, “Given MAI price drop to ~$0.72 over the past 24 hours and its inability to regain peg for the past few months, Gauntlet recommends beginning the deprecation of MAI. We aim to do so by reducing LT and increasing borrow rates to incentivize repayment.”
Challenges Faced by Mai Stablecoin
The Mai stablecoin, issued through DeFi protocol Mai.Finance and governed by QiDAO, has been struggling to maintain its intended dollar peg since July when it first fell below $0.98. The project has not provided clear reasons for why the stablecoin has been trading below the dollar mark for several months. Mai’s fully diluted market cap is valued at $238 million, with most of its supply issued on the Polygon blockchain.
Risks Associated with Decentralized Stablecoins
Another decentralized stablecoin facing a depeg issue is Real USD (USDR), which is backed by tokenized real estate assets and issued by TangibleDAO. Its price recently dropped by 50% and it is currently trading at $0.53. Unlike centralized stablecoins such as USDC and USD Tether (USDT) that are backed by cash or cash equivalents, decentralized stablecoins are collateralized by cryptocurrencies and operate based on algorithmic mechanisms. This makes them more vulnerable to losing their peg due to market fluctuations or underlying asset changes. Previous instances of depegging include USDX on the Kava blockchain and USDN on Waves.
A spokesperson from QiDAO did not provide an immediate response for comment.
Hot Take: Challenges Persist for Decentralized Stablecoins
The recent depegging events experienced by Mai and Real USD highlight the risks associated with decentralized stablecoins. These types of stablecoins, which rely on cryptocurrency collateralization and algorithmic mechanisms, are more prone to losing their pegs compared to centralized stablecoins backed by real-world cash or cash equivalents. The ongoing struggles faced by Mai and Real USD emphasize the need for careful risk assessment and governance measures within the decentralized finance ecosystem. As the market continues to evolve, addressing these challenges will be crucial for the long-term stability and adoption of decentralized stablecoins.
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