Gnosis Community Debates Stablecoin Options Amid Controversy Over MakerDAO Overhaul
Gnosis has several options going forward. Photo by Jan Huber on Unsplash.
Key Takeaways
- The Gnosis community is debating how to respond to the migration from DAI to USDS.
- Bridged DAI currently functions as Gnosis’ gas token.
- Community members have condemned USDS’ freeze function.
- Looking forward, the platform could adopt another cryptocurrency as its gas token.
Following MakerDAO’s relaunch as Sky and the ensuing controversy over its new stablecoin, USDS, the Gnosis community is considering how to respond.
Voicing the community’s concerns, Gnosis forum contributor LaJota lamented that the new stablecoin’s freeze function “goes against the philosophy of Gnosis.”
DAI’s Role in Gnosis
While Gnosis Chain has its own governance token, GNO, it utilizes the XDAI stablecoin as its native currency to pay for gas.
XDAI is essentially wrapped DAI.
In other words, the stablecoin is minted when users deposit DAI issued on Ethereum to the XDAI bridge. When DAI is withdrawn from the deposit contract, the equivalent amount of XDAI is burnt, ensuring the two currencies maintain their peg.
The Gnosis community selected DAI due to its decentralized, trustless model.
Unlike centralized stablecoins such as USDT and USDC, DAI was founded on the principle of censorship resistance.
However, with the new stablecoin’s freeze function, the same can’t be said of USDS.
Gnosis Weigh’s Options Post-USDS Migration
In a lively debate on the Gnosis forum, community members floated several ideas for how to proceed.
Replace DAI With Another Decentralized Stablecoin
As several forum contributors pointed out, there are plenty of smaller decentralized stablecoins that share many of the same qualities that made DAI attractive in the first place.
Options cited include Rai, Hai, LUSD, and crvUSD. Some members also expressed an interest in utilizing a basket of multiple stablecoins or creating a new coin entirely.
The downside of this option is that no other decentralized stablecoin has anywhere near DAI’s liquidity, a factor crucial to Gnosis’ continued adoption.
Migrate to USDS
While MakerDAO isn’t forcing DAI holders to migrate to USDS, most stablecoins are expected to be swapped eventually.
For the time being, DAI in the Gnosis bridge remains unchanged.
However, as more DAI is converted to USDS, Gnosis deposits will lose their yield to the new token, undermining the DeFi platform’s viability.
Migrating to USDS would solve this problem, but the community appears to have little appetite for this option.
As one member said, “Why switch to a new centralized stablecoin without network effects? In that case, it’s clearly better to choose the largest player on the market, meaning USDT or USDC.”
Replace DAI With a Centralized Stablecoin
Although adopting a centralized stablecoin would go against Gnosis’ underlying ethos, the community seems open to the idea.
Of course, centralized stablecoins are subject to the kind of freezing that kicked off the debate in the first place.
However, some contributors argued the tradeoff is worth it, considering the significant liquidity the largest stablecoins offer.
Take Over DAI From MakerDAO
Some Gnosis community members suggested that the Gnosis DAO could take over DAI governance from MakerDAO and continue to operate the stablecoin as it always has been.
However, others questioned the idea’s technical feasibility, which would require support from MakerDAO.
Ditch Stablecoins Altogether
One final option floated was for Gnosis to abandon the use of stablecoins gas tokens altogether.
Proposals include replacing DAI with either GNO or wrapped ETH. However, this would entail a fundamental change to the platform’s tokenomics.
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