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Single-Collateral DAI Shutdown: Everything You Need to KnowShare on LinkedinDownload

Single-Collateral DAI Shutdown: Everything You Need to Know

This article provides a summary of what is happening with Single-collateral Dai, also known as SCD or SAI, and what actions SCD holders can take. Unlike centralized stablecoins, such as USDC or USDT, SCD is not backed by actual US Dollars sitting in a bank. Instead, it is backed by Ethereum (ETH) which is locked into Collateralized Debt Positions (CDPs) on the Maker platform.

In this article

What is happening with Single-collateral DAI?

On March 30th, 2020, a Governance Poll went live on MakerDAO’s voting system asking their community to vote on whether or not to initiate a shutdown of the Single-collateral Dai system.

Screenshot from MakerDAO's voting portal

The poll closes on Monday, April 6th, 2020. If this proposal passes, there will be an Executive Vote on Friday, April 24th, 2020 asking Maker token holders if they support or reject the change proposed by the Governance Poll.

Why Single-Collateral DAI is being shut down

On November 18th, 2019, Multi-collateral Dai, also known as MCD or simply DAI, went live as an upgrade to Maker’s Dai protocol. Unlike SCD, which is solely backed by underlying ETH collateral, MCD is a multi-collateral backed stablecoin pegged to the US Dollar. The collateral underlying MCD is currently made up of three Ethereum tokens (BAT, ETH, and USDC) with more being considered (ZRX, OMG, REP, GNT, and DGD).

Phasing out Single-collateral Dai in favor of Multi-collateral Dai (DAI) was always a part of the plan since MCD includes more collateral options on top of ETH. Previous discussions to shut down the SCD system had taken place in late 2019, and while there was no initial rush to shut down SCD, recent market realities have prompted the MakerDAO community to revisit the idea of shutting down SCD sooner rather than later.

The extreme market conditions that took place on March 12th, 2020, which saw Ethereum (ETH) suffer a price dip from around $180 USD to just under $100 on some exchanges, brought the US dollar peg stability of the SCD system into immediate question since SCD is collateralized, or secured, by ETH. In short, SCD runs the risk of becoming under-collateralized under its current system. Maker wants to shut down the SCD system and fully migrate to the new MCD system.

On March 12th, the price of ETH dropped over 40%

What a shut down means for SCD, or SAI, token holders

If Maker moves forward with shutting down the SCD system on April 24th, all SCD tokens will be automatically converted to Ethereum at the market price at the time of the shutdown. $1 of SCD will be converted to $1 worth of ETH.

All those still holding SCD at the time of the shut down will have their SCD automatically converted to ETH. The ETH will be sent to the same Ethereum address that held the SCD.

Since the value of their holdings will no longer be pegged to the value of USD, these former SCD holders will take on the price volatility of ETH whose price fluctuates based on current market supply and demand.

Furthermore, the ETH that is locked up as collateral backing SCD, will suddenly flood the market, increasing ETH's circulating supply, which will put downward pressure on ETH's price.

An option SCD holders have it to swap their SCD tokens for the new MCD tokens before April 24th, 2020. SCD can be swapped for MCD at a rate of 1 to 1. This option retains the dollar-pegged value of their DAI holdings but must be done before the SCD system shuts down on April 24th, 2020.

Learn how to convert SCD to MCD, or SAI to DAI, in this quick tutorial.

Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.

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