A new governance proposal to change the maximum debt ceiling to 500 million DAI had just been called into effect. 

Photo by Alex Knight on Unsplash

On Oct. 22, the Maker team said it had enacted the execution of a 500 million debt ceiling on its stablecoin DAI. This was done so that funds present in the Peg Stability Module (PSM) can be used to increase exposure to GUSD – a U.S. Dollar-pegged stablecoin issued by Gemini – so that it will earn 1.25% annualized rate on a monthly basis.

Maker’s PSM allows users to swap stablecoins used as collateral for DAI at a fixed rate, and is essentially the driving force behind DAI maintaining its peg. Arbitrageurs trading the difference between DAI and other stablecoins ensure the asset sits at the $1 mark.

While the total value in Maker’s PSM is close to $4 billion, close to $3.4 billion consists of Circle issued stablecoin USDC. Meanwhile, $498 million is placed in Paxos-issued stablecoin USDP and $5 million in GUSD.

The move to increase exposure to GUSD comes on the back of a partnership between Gemini and MakerDAO announced last month, where Gemini proposed paying annual interest of 1.25% on all GUSD stored in Maker’s PSM vault. As part of the terms of the agreement, Maker had to maintain an average monthly balance of at least 100 million GUSD.

While this move was geared at increasing the adoption of GUSD for Gemini, the interest on GUSD in the PSM vault would undoubtedly be a step in the right direction for Maker, seeing as these would otherwise be sitting idle in a high-inflation environment.

The increased exposure to GUSD will also likely be welcomed by some industry watchers who would like to see Maker diversify away from USDC which accounts for a significant chunk of the PSM vault. In fact, an August proposal outlines Maker’s own plans to become fully decentralized by lowering its reliance on stablecoins like USDC after Circle froze funds associated with Tornado Cash accounts earlier this year.