Today, we downgraded the rating of the Maker USD Fee Sharing pool from Lowest risk to Low risk, reflecting increased protocol risks associated with recent changes approved by Maker’s community.
Rationale
The downgrade to Low risk follows the recent governance vote within Maker to expand the use of Ethena's USDe and sUSDe as collateral, permitting up to $1 billion in DAI to be borrowed by USDe and sUSDe holders. Ethena introduces a new model for generating yield on stablecoins, which involves shorting ETH and BTC on centralized exchanges to earn funding fees. This riskier approach is expected to enhance DAI demand, directing profits from this increased risk-taking back to MKR holders.
While this move is anticipated to benefit MKR holders through potentially higher returns, it shifts a greater burden of risk onto DAI holders due to the introduction of lower-quality collateral into the system. This change in collateral quality represents a significant departure from Maker's previous risk profiles, influencing our decision to adjust the pool's rating accordingly.
Factors that could lead to an upgrade
- Improvement in the quality of collateral, reducing the protocol risk.
- Enhanced governance mechanisms that effectively manage the risks associated with new collateral types.
- Demonstrated stability and resilience of the pool's performance over time.
Factors that could lead to a downgrade
- Further expansion of lower-quality collateral without adequate risk controls.
- Significant adverse developments in the performance or stability of Ethena's operations.
- Deterioration in Maker's overall financial health or governance practices.
Methodology
The methodology applied in this rating action is based on our analysis of DeFi protocol risks, including lending design, collateral quality, and governance dynamics. For further information on our rating methodologies, please see our risk framework.