MakerDAO, a major player in the decentralized finance (DeFi) space, has recently rebranded itself to Sky and announced a significant update to its popular stablecoin, DAI. The rebranded entity introduced a new stablecoin, USDS, which has drawn sharp criticism from the crypto community due to a controversial feature embedded in its code: the ability to freeze assets remotely.
The concept of freezing assets is not new to the stablecoin ecosystem. Centralized issuers like Circle, with their USDC, and Tether, with USDT, have included similar features in their stablecoins. These issuers often comply with government requests to freeze assets linked to illegal activities. For instance, Tether recently froze $5 million in USDT to aid the U.S. Department of Justice in a fraud investigation. However, such measures are seen as antithetical to the decentralized ethos that MakerDAO originally championed.
Rune Christensen, the co-founder of MakerDAO, acknowledged the presence of the freeze function within USDS. However, he clarified that the feature would not be activated when the token launches next month. “Upgrading to USDS is optional, and it is only USDS that will have a freeze function,” Christensen explained. “DAI is an immutable smart contract and cannot be altered.”
This reassurance did little to quell the concerns of many DeFi enthusiasts who felt that introducing such a feature, even if optional, represented a shift towards centralization. The idea of a freeze function appears to go against the foundational principles of decentralization and censorship resistance, which are cornerstones of the DeFi movement.
Despite the backlash, some industry experts argue that the concerns might be overblown. AJ Scolaro, a senior analyst at crypto research firm Messari, pointed out that the existence of the freeze function in USDS was already known and that it is a necessary feature for a stablecoin partially backed by real-world assets (RWA) like U.S. Treasuries. “The sudden USDS FUD [fear, uncertainty, despair] is funny,” Scolaro remarked. “We knew about the freeze function several months ago; it’s 100% necessary to safely scale an RWA-backed stablecoin.”
Scolaro further added that having the option to comply with legal systems does not necessarily undermine decentralization. Instead, it could ensure that a major decentralized stablecoin remains compliant with global financial regulations while being governed by its users. “A major decentralized stablecoin should both be governed by its users and able to comply with legal systems,” he said. For those wary of this new direction, Scolaro assured that the original DAI, referred to as “PureDai,” would continue to exist as an alternative that remains free from such centralized controls.
As Sky prepares to launch USDS, the controversy surrounding its freeze function underscores the ongoing tension between the ideals of decentralization and the practicalities of widespread adoption and compliance. Whether USDS will gain traction within the DeFi community or face resistance remains to be seen, but one thing is clear: the debate over decentralization and control in the crypto space is far from settled.
