[Temp Check] Swap Portion of Treasury USDC to DAI

Hello fellow ENS community members,

With the recent successful sale of 10,000 ETH for USDC, as per EP3.3, the ENS DAO treasury is now funded with roughly ~17 million USDC. This is intended to cover operational runway for the next 18-24 months.

Separately, ENS is entering into a treasury management engagement with Karpatkey that will deploy ETH and additional stablecoins for yield to prudently grow the DAO’s resources.

I’d like to raise the possibility of swapping a portion of ENS DAO’s stablecoin reserves held in the treasury timelock from USDC to DAI in order to reduce business continuity risk and safeguard the DAO’s operational runway.

This post is intended as a jumping off point for discussions, please share your perspectives below and all feedback is appreciated!


Swap 5 million USDC (or another amount to be determined through community discussion) for DAI, and deposit DAI in Maker’s Dai Savings Rate contract.


Recent treasury management proposals have put the DAO on a much firmer footing, ensuring that critical operations of community working groups and ENS Labs can continue even in the event of a worsening bear market. However, the heavy reliance on USDC for operating runway poses some business continuity risks.

  • USDC solvency risk: While USDC’s reserves are held in safe, short duration assets, USDC is organized under state money transmission frameworks which are less robust vs some other centralized stablecoins, and there is no assurance of USDC reserves being bankrupt-remote with respect to the issuers.
  • USDC key management risk: If USDC minting keys were compromised this could lead to significant impairment of USDC value.
  • USDC centralization risk: USDC can be frozen by the issuer, which exposes ENS DAO to possibility of legal or regulatory risk.

I believe DAI could offer meaningful diversification for each of these risks, while offering the scale, liquidity, broad acceptance, and reliability required to serve as a treasury asset for ENS DAO.

Benefits of Allocating to DAI

Diversify Counterparty Risk

Maker collateral backing is broadly diversified across crypto native collaterals (ETH, stETH, rETH, WBTC, etc), stablecoins (USDC, USDP, GUSD), and real world assets (RWAs), most notably significant holdings of short term US treasury bills which are among the safest investments available.

While DAI has significant exposure to USDC within its collateral base, the share of DAI generated from USDC has been trending down steadily and is expected to continue to fall over time.

Source: Daistats

Between all DAI exposed collateral types (including the PSM and LP tokens containing USDC), total USDC exposure is slightly below 50% of backing. Recent proposals will likely reduce this share further, for example Paxos proposed to increase maximum DAI backed by USDP to 1.5 billion in exchange for incentive payments linked to SOFR (secured overnight funding rate).

Reduce Centralization Risk

The DAI token is immutable, and MakerDAO has no capability to freeze user funds. ENS DAO can be assured of always being able to freely transfer or exchange any DAI in their possession.

Dai Savings Rate

In addition to risk diversification, DAI holders can also benefit from the Dai Savings Rate (DSR), which pays a stable yield set by Maker governance (currently 1%) on DAI deposited within the contract. Funds are not subject to lockups and can be withdrawn at any time.

The risk profile of DAI deposited in the DSR is equivalent to holding DAI in a wallet, other than technical risks involved in the DSR contract itself (which should be minimal considering the contract has held significant funds over a 3 year period with no exploits to date).

Assuming 5 million USDC swapped to DAI, and current DSR rate of 1%, this would generate roughly 50,000 DAI in annual revenue to the ENS DAO.

Risks of Allocating to DAI


  • No bank guarantee
  • Not FDIC insured
  • May lose value

Solvency Risk

DAI is managed through a smart contract system, and it is possible that unexpected technical or operational faults could lead to loss of funds, up to the total loss of all DAI value. Additionally, impairment of collateral value through market volatility or defaults could result in Maker becoming insolvent, and while the protocol currently has over 70 million DAI in system surplus available to absorb losses this may not be sufficient in all cases.

Liquidity Risk

There is no guarantee that DAI will continue to trade at $1 even if the Maker protocol remains solvent. If the supply of DAI (from vault minting) exceeds demand from users, this could lead to external stablecoin reserves in Maker’s peg stability modules (PSMs) becoming exhausted and DAI trading below $1. If DAI trades below target value due to a supply/demand imbalance, it is expected that Maker governance would increase both vault minting costs and the DAI savings rate to help rebalance supply and demand, but there is no guarantee of governance action or that any action taken would return DAI to target price on a reasonable timeframe.

Governance Risk

Maker governance has broad influence over protocol parameters, including choice of accepted collateral assets and oracle pricing mechanisms. Malicious or incompetent governance actions could result in losses for DAI holders. In the normal course of operations, Maker governance could adopt changes that would have a material adverse effect to DAI holders (for example raising the fees required to swap DAI to USDC through the PSM) and DAI holders would not have a method of recourse for such impacts.

The Maker protocol features an emergency shutdown module (ESM) that can be triggered permissionlessly by a minority quorum of MKR holders burning their tokens (currently 150,000 MKR, roughly 16% of circulating supply). This is intended as a security measure and to safeguard against malicious governance majorities. However, if the ESM is triggered DAI would no longer track target price but would instead represent a pro-rata claim on the protocol’s collateral assets, with the possibility of DAI holders recovering significantly less than $1 of value per DAI depending on market conditions.

Other Risks

This is not a comprehensive list of potential risk factors of holding DAI. ENS DAO should review the risks of holding DAI and come to an independent conclusion on whether it is suitable for use within the DAO’s operational treasury.

Impact on DAO Operations

Assuming a majority of the DAO’s operational stablecoin reserves held in the timelock remain in USDC, this should have an insignificant impact on existing DAO financial operations and payroll. Existing payment streams denominated in USDC can continue to be paid without changes, and semi-annual working group disbursements can be funded with either USDC or DAI at the DAO’s discretion when funding proposals are made. If ENS DAO’s USDC reserves fall below a comfortable threshold (eg. next 6 months expected outflows), DAI can be swapped back to USDC as needed through the PSM assuming there is sufficient liquidity, or on secondary markets at prevailing market rates if not.


Subject to DAO discussion and rough consensus being reached, an executable proposal to implement the above would involve the following actions:

If USDC reserves needed for operating expenses fell below 6 months forward looking expected outflows, the deficit can be removed from the DSR and swapped back through the PSM (or on the secondary market if necessary) via a subsequent executable proposal.


I work with Maker affiliated service provider Block Analitica, may serve as MakerDAO Risk Core Unit facilitator pending an upcoming governance vote, and hold MKR tokens.

The above proposal is provided for informational purposes only, on an “as is” basis, and without warranty of any kind. This is not intended or offered as financial, legal, regulatory, tax, or investment advice. Users should conduct their own due diligence and seek qualified advice where appropriate. This is not an offer, solicitation, or recommendation to engage in a financial transaction or purchase any financial instrument.

Copyright and related rights waived via CC0.


I would probably vote in favor of this.

This part, I’m not so sure about. Off the top of my head, I can think that aave offers a better APY, for example, if it were going to be deposited anywhere. What would the benefit be of depositing with Maker over another option?

Also, this could cross into active fund management territory, which would complicate things.

Overall I would almost certainly be in favor of diversifying the stables by swapping some USDC for DAI. I like DAI.

Now that I think of it, I don’t believe I’ve seen a reason for why ENS prefers only USDC for USD. :thinking:


The DAI Saving Rates doesn’t add any risk (it’s one more contract but a very simple immutable one that runs for 3 years now). Using Aave is adding a wide array of risks but indeed with, usually, higher yield.

PS: Steakhouse is closely working with MakerDAO (we do finance and RWA management). @monet-supply presentation seems fair, I will just add that DAI <-> USDC is free at MakerDAO (PSM-USDC-A).


In support of this proposal.

Recent regulatory developments around centralized stablecoins suggest that a crackdown could be coming in the short to medium term, making it all the more important to explore alternative approaches asap.

By using DAI and MakerDAO, the ENS DAO can take advantage of their battle-tested track record in the market and achieve a decentralized approach that can help mitigate risks associated with centralized stablecoins.

I encourage others to consider it as well.


Are there any hints that Circle could come under scrutiny by the SEC or another regulatory body and cause disruption to USDC? Makes sense to swap for a more censorship resistant stablecoin if that’s the case. Curious to hear from MG stewards as they could have a better read on this.

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It seems the recent actions around BUSD were targeted at Binance specifically, but broader regulatory pressure against centralized stablecoins can’t be ruled out.

I think DAI offers a valuable middle ground in the decentralized vs liquid/reliable tradeoff space for stablecoins. It has significant centralized collateral (USDC, other centralized stablecoins, etc) but because the DAI token is immutable it offers a layer of protection in case ENS itself were to face legal or regulatory threats.

Other stablecoins with more strictly decentralized collateral might be more resilient against regulatory risk, but have less liquidity, potentially higher cost to use, and more market risk.

RAI is solely collateralized by ETH, but tends to decline in value over time due to negative interest rates. And the current market cap is only about $8 million USD equivalent, meaning any sizable purchase by ENS DAO could significantly increase market price (market impact costs) and push interest rates farther negative. I think this could be an interesting addition to DAO treasury but would realistically not be able to accommodate a significant share of the DAO’s operational reserves.

LUSD is possibly more suitable, with a market cap of over $200 million and deeper liquidity, but a sizable purchase would still incur slippage/market impact costs on trading into and out of LUSD. The core mechanism itself also has some edge cases. For example if demand for LUSD spiked (eg due to ETH price crash forcing users to repay debt to avoid liquidation, or rush of users from centralized stablecoins into LUSD due to regulatory crackdown), this could lead to negative feedback loop where price spikes above $1.10, resulting in users allowing their position to liquidate at 110% collateral ratio as a cheaper option vs repaying, which in turn would make participation in stability pool unprofitable and lead to exhaustion of stability pool funds. So, LUSD has higher costs to use (due to liquidity constraints / slippage) and possibility that the stability and protection it provides may not be resilient in the cases where it is most needed. Similar to RAI, I think it could be a valuable addition to DAO stablecoin reserves but is not a scalable close substitute for liquid stablecoins like USDC or DAI.

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Yep. Swapping half of this tranche to DAI is a good move. We know USDC might be slightly more susceptible to some black swans. No reason not to take an easy and free move for safety.

I’m a little less sure that the Maker DAI Savings Rate contract is the right choice. The additional contract risk might be small, but I think we’ll soon have most of the treasury in various yield bearing contracts through Karpatkey’s strategies. We might want these tokens unencumbered.


I like the idea of swapping at least $5 mil to DAI.

Although also not sure one the second option, I think it should simply be held.


Sounds like you are considering a series of swaps, rather than just one single swap (USDC > DAI).

Yes sure, I think it could be healthy to have further discussions on this once the [Draft] [Executable] Fund the Endowment (first tranche) moves forward (if/when it does).

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I’m open to additional diversification (into LUSD and/or RAI) but this would be out of scope for the current proposal. Imo capacity constraints make these alternative decentralized stable assets less suitable for day to day operational funding.

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USDC currently at 0.97 and looking very unsturdy.

Diversification should definitely be addressed sooner rather than later.


Need to do it ASAP

Problem is though does it not need a vote

Might be a major fail away to happen for those that pushed for the sale


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DAI has also depegged, so the proposed action would not have insulated the DAO from what is happening in the market.


Yep, I was meaning something need to be done ASAP in general, I forgot that this thread was about DAI

Still no idea why ETH was deemed not good enough to hold

It’s not looking good at all, ENS funding could be wiped out due to putting it into USDC

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Curious to know if there are any financial advisors contributing to the DAO. It was odd in the first place to swap ETH for USDC after a 60% correction in ETH. ( why not swap a portion to fiat, usdc, gold etc) that would’ve generated twice the financial runway in 2022.

Even without the writing on the wall (fed officials illegally selling stocks at the top) understanding economic cycles is the key to financial literacy.

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There was nothing wrong with the proposal or the action taken. Diversifying ETH into USDC at that time was a sound decision and every “professional” who understands this space would agree.

Criticizing the decision during/after a black swan event isn’t helpful. If you or anyone else had concerns about the course of action, those concerns could have been credibly raised during the proposal process or at any point following the execution of the swap.


DAI is a good idea. For further risk bracketing, we should leave a portion at rest, no yield.

I would also suggest a smaller position in RAI which has unique properties.

Hi all, I haven’t been actively pushing this idea recently, but just wanted to note that the Dai savings rate is expected to be raised from current 1% to 3.49% in the coming weeks.

Also want to note, supplying DAI to the DSR does not cause any additional risk vs just holding DAI (other than a negligible degree of technical risk from the DSR contract itself potentially having an issue - unlikely given it is over 3 years old and has held millions of dollars in TVL over this period). If ENS decides to diversify a portion on operational treasury into DAI, there’s no risk related reason not to hold it in the DSR (or a tokenized wrapper of the DSR such as sDAI).


I agree that depositing DAI into the DSR carries less technical risk compared to simply holding DAI. However, it’s important to consider the potential implications of depositing DAO’s operational funds into a smart contract. This decision would require DAO members to take on additional responsibilities such as monitoring the position, assessing liquidity needs in advance, and creating multiple executable proposals.

On another note, at @karpatkey, we are currently developing a proposal to request the ENS DAO to authorize depositing DAI into the DSR for the Endowment, along with other proposed actions. If our proposal is approved, our intention is to transfer the DAI position on Compound (approximately $7.35M based on the latest report) to the DSR. Consequently, the ENS DAO would have exposure to the DSR through the Endowment.

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Thanks monet for this context.

As I mentioned before, we should keep some portion at rest, no yield. This avoids the risk described. There could be compiler bugs for instance. solc is not v1.