Skye's new USDS stablecoin has a freeze function built into its code. That makes it less attractive to crypto criminals.
DeFi lender MakerDAO has unveiled its long-awaited rebrand to Sky, the latest step in co-founder Rune Christensen's so-called endgame plan.
But reception has been mixed.
The most controversial change is that USDS, a new version of the DAI stablecoin, has a freeze function in its code, giving Sky the discretion to freeze USDS transfers from holders' wallets.
While the move is necessary to make USDS a less attractive asset to malicious actors, including hackers, security experts have questions.
“The effectiveness of this measure depends on how proactive and under what circumstances the Sky team chooses to implement it,” said Michael Lewellen, head of solutions architecture at crypto security firm OpenZeppelin. News.
Lewellen noted how Circle's USDC, another stablecoin with similar restrictions, has been slow to freeze stolen funds in some cases due to the need for formal legal requests.
“[It’s] It's definitely a step toward making it less attractive to criminals,” Lewellen said.
Crypto criminals have historically preferred DAI over other stablecoins because of its lack of a freeze function – no authority has the power to freeze or seize tokens.
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Centralized stablecoins such as Tether's USDT and Circle's USDC have freeze functions that enable them to confiscate funds from criminals and comply with anti-money laundering regulations.
For Sky supported DAI $2 billion The value of real-world assets – including US government bonds – is something that cannot be ignored to comply with such rules.
With a supply of around $5.3 billion, DAI is the third largest crypto stablecoin.
Sky, formerly MakerDAO, has $6.4 billion in user deposits.
Christensen said Sky's goal is to grow the supply of DAI to “$100 billion and beyond.”
Don't freeze my DAI
Some dislike the change, saying it goes against crypto's promise to create a decentralized, trustless economy.
By giving an entity the power to freeze tokens, users need to trust that it will not abuse that power.
But at the same time, this un-freezability is a boon for hackers.
They typically exchange stolen assets with freeze functions — such as USDT and USDC — into DAI or other unfreeze assets such as Ether at the earliest opportunity.
For example, the hacker who stole $450 million from FTX transferred some of the stolen funds to DAI immediately after the defunct exchange declared bankruptcy in 2022.
Grzegorz Trawínski, an auditor at blockchain security company Hacken, is optimistic.
“This is a step that could prove necessary in ensuring the longevity and safety of the ecosystem,” Travinsky said. News.
Travinsky said the move also reflects broader industry recognition that centralized mechanisms are needed to protect platforms and users.
However, Sky doesn't plan to completely remove the unfreeze version of its stablecoin.
In a May post on the Sky Governance Forums, co-founder Christensen laid out a plan Transformation From DAI to PureDai — an immutable, unfreeze version of a stablecoin with no permanent connection to Sky.
“The original DAI will still exist,” Lewellen said, adding that it could still be a popular choice for those who prefer decentralized options without restrictions — including criminals.
But there is a caveat. If Skye's new USDS stablecoin is successful, users will migrate from DAI to it and its liquidity will decrease.
And with less DAI in circulation, it's harder for bad actors to exploit it.
There is Tim Craig News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].
Related Topics MAKERDAI