Maker Faces Major Backlash for Upgraded Stablecoin, Co-Founder Responds

The decentralized finance (DeFi) project Sky (formerly called Maker) is facing backlash following the announcement of an upgraded stablecoin that some fear could compromise the project’s commitment to decentralization.

The new stablecoin, USDS, has drawn criticism for including a so-called “freeze function,” a feature that would allow the token’s issuer to freeze transactions under certain conditions.

Major Backlash

Concerns about this feature were raised by several members of the DeFi community, who argued that it undermines the foundational principles of decentralization. An X user questioned if the introduction of such a function didn’t “completely defeat the purpose of the project.”

Maker’s Response

In response to these concerns, Rune Christensen, co-founder of the Maker protocol, clarified the situation in a recent X post. It was explained that, although the freeze function is not included at the launch of USDS, the token would have an upgrade capability, which would allow future governance decisions to determine whether and how to implement such a feature. Christensen emphasized that any implementation would be carefully considered, weighing various risk factors to ensure the system’s integrity.

Further clarification was provided in a May forum post by Christensen, where it was mentioned that the freeze function, if activated, would generally adhere to the legal frameworks of jurisdictions where Maker operates. This measure is expected to provide a higher level of legal certainty for real-world asset (RWA) collateral backing.

A ‘Necessary’ Feature

Adam Cochran, a partner at Cinneamhain Ventures, noted that such a feature might be necessary to secure backing from U.S. Treasury securities. He pointed out that T-bill yields, even from secondary treasury deals, typically require both a freeze function and a VPN jurisdiction blocker, suggesting that such trade-offs are essential for projects seeking to integrate with traditional finance systems.

The rebranding of Maker to Sky has also been met with criticism, particularly with the rebranding of its DAI stablecoin to USDS. The project’s website now restricts access via VPNs, which has only added fuel to the controversy.

Despite the pushback, it was clarified by Christensen that the original Dai stablecoin would remain unchanged and could continue to be used without any new restrictions. The introduction of USDS, however, would include the optional freeze function as part of Sky’s “Endgame” roadmap, which aims to scale the stablecoin supply and integrate real-world assets, potentially positioning it as a rival to Tether (USDT).

This move echoes practices seen with centralized stablecoins like Tether, which has recently helped recover $108.8 million in USDT tied to illegal activities.

It is interesting to note that the stablecoin market recently hit a new all-time high in terms of market capitalization, currently standing around $168 billion.