As a former DAI and MakerDAO champion, Mr. Cochran has revealed three main indicators that one stablecoin poses a huge threat to the sanity of decentralized finances worldwide.
One more house of cards
According to Mr. Cochran, DeFi institutions look like a Lego made of interconnected elements with one common basic detail, the DAI stablecoin. That said, it is this stablecoin that acts as the weakest point of vulnerability.
3 Reasons Why $DAI is DeFi's Biggest Risk:
I was huge into MKR when in first launched.
It made sense - a project where we could use ETH, the asset that all chain participants believed in, to back a stablecoin.
But, for the last 8~ months, I've taken a lot of flack for pic.twitter.com/uV9GMVSrm7— Adam Cochran (@AdamScochran) April 21, 2020
All systems based on a single asset need to rely on the fair nature of its emission, trusted origin and proper transferring. Should the asset fail to meet these requirements, all DeFi clients would need to brace themselves for another multi-million hack.
The recent dForce attack, which was caused by the vulnerability of the imBTC-ETH interaction, is a textbook example of such misconduct.
Red flags of (de-?)centralization
The modus operandi of the team behind DAI stablecoin is also alarming for the expert. He highlighted the whale-dominated structure of its token allocation, several governance failures, lack of transparency and even attempts to trademark the word ‘DeFi’.
Furthermore, the shady nature of collateralization that includes assets with high volatility looks rather disturbing for Mr. Cochran. It is one more room for the manipulations, he admits. Although, he knows no alternative for DAI that is active at the moment.