MakerDAO Releases Speedy DAI Transfers and Tightens Controls on Vaults

DeFi Lender Unaffected by FTX Yet Takes Steps to Fend Off Potential Contagion

By: Samuel Haig Loading...

MakerDAO Releases Speedy DAI Transfers and Tightens Controls on Vaults

MakerDAO, the No. 1 DeFi platform with more than $8B in total value locked, now allows users to transfer its DAI stablecoin between Ethereum’s mainnet and Layer 2 networks, the protocol announced on Wednesday.

Dubbed Maker Teleport, the service supports leading Layer 2s Arbitrum and Optimism, enabling near-instant transfers between the two chains and fast withdrawals back to the Ethereum mainnet.

Connected Entity

MakerDAO is a collateralized debt protocol allowing users to mint DAI against collateral assets such as ETH, WBTC, and USDC. DAI is the fourth-largest stablecoin with a capitalization of more than $5B,

In response to the failure of FTX, the No. 2 cryptocurrency exchange worldwide, the project said that MakerDAO, the Maker protocol, and DAI are not affected “in any way by the financial concerns triggered by FTX, Alameda Research, or any other connected entity.”

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Still, Maker has taken steps to protect its platform from FTX damage. On Nov. 16, it reduced the debt ceilings for some of its vaults, which contain tokens that may be vulnerable to contagion. They include MATIC, LINK, YFI, and MANA vaults, and Maker is also dropping its RENBTC vault down to zero.

“These parameter changes were executed for the sole purpose of protecting DAI holders and the financial health of the Maker Protocol from uncertainty surrounding the financial stability and liquidity of the involved assets,” Maker tweeted.

Transaction Fees

As for its new feature, Maker is addressing a quirk in the Layer 2 proposition. Arbitrum and Optimism are both optimistic rollup networks. Rollups bundle together transactions executed on Layer 2 and submit them in batches for validation on Ethereum’s base layer to reduce transaction fees.

However, cross-chain transfers from an optimistic rollup require a seven-day check for fraudulent transactions and validators have been submitting inaccurate transactions at risk of losing significant collateral, according to the Ethereum Foundation.

Usability Shortcoming

Maker describes the delay in transfer execution as a significant “usability shortcoming” for optimistic rollups. “Teleport addresses this… by avoiding the need to withdraw tokens to Layer 1 before bridging to another Layer 2 network,“ MakerDAO said in its announcement

MakerDAO is also offering a 10,000 DAI grant to any builder that can develop a user interface for its Teleport feature.

Arbitrum is Ethereum’s Layer 2 network, boasting 52% of the sector’s $4.4B TVL, according to L2beat. Optimism ranks second with $1.3B.

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MakerDAO began formally developing a multichain strategy in the second quarter of 2021. While MakerDAO has regained the title of DeFi’s largest protocol by TVL amid the 2022 bear trend, it was overtaken by the likes of Aave and Curve during the 2021 bull cycle — both of which have numerous multichain deployments.

On MakerDAO’s governance forum, Derek, a core unit facilitator, wrote that Maker could find itself chasing the value flowing from Ethereum if the majority of DeFi transactions begin taking place on Layer 2.

Settlement Layer

“Maker protocol needs collateral to mint DAI. If more and more collateral is moved to other chains, Ethereum may eventually become a global settlement layer for these chains / rollups while most of the actual DeFi transactions will happen on L2s.” Derek said.

Derek also stressed the benefits of Maker operating its own bridge when expanding across multiple chains. Relying on multiple third-party bridges would fragment DAI’s liquidity by creating wrapped versions of a token that are not fungible with each other, he warned.

“Many versions of DAI create confusion in the community, especially amongst retail users,” Derek said. “The ideal solution would aim at making bridged DAI and minted DAI fully fungible so for the end user this is the same DAI. This is ultimately possible only if MakerDAO controls the bridge used to transfer DAI to other chains / rollups.”