The crypto risk assessment firm Gauntlet proposed to the Aave lending protocol that it deprecates the use of the decentralized stablecoin Mai (MIMATIC) in lending services.
This is due to the ongoing depeg involving the stablecoin. The price of Mai experienced a significant decline in the past couple of weeks, dropping from $0.88 at the beginning of October to 0.72 earlier today. It’s currently trading at $0.78, according to CoinGecko data.
In response, Gauntlet recommended to Aave’s governance unit that they initiate the full deprecation process for Mai by setting its loan-to-value (LTV) ratio at 0 and increasing borrowing rates, which would enable enforced liquidations. The estimated impact is approximately $70,000 in forced liquidations, Gauntlet said.
The proposal stated, “Given MAI price drop to ~$0.72 over the past 24 hours and its inability to regain peg for the past few months, Gauntlet recommends beginning the deprecation of MAI. We aim to do so by reducing LT and increasing borrow rates to incentivize repayment.”
Mai lending services are not currently available on Aave’s front end, although previous loans involving the stablecoin may exist at the smart contract level.
The Mai stablecoin, issued by DeFi protocol QiDAO, has encountered challenges in re-establishing its intended dollar peg since July when it first fell below $0.98.
The issuer has not provided an explanation for the stablecoin trading below the dollar mark for months. The fully diluted market cap of Mai is worth $238 million, with the majority of the supply is issued on the Polygon blockchain.
Mai’s price has fallen significantly below its peg over the last few days. Source: CoinGecko
Risks associated with decentralized stablecoins
Coinciding with the Mai stablecoin issue, Real USD (USDR), which purports to be backed by tokenized real estate assets and is issued by TangibleDAO, also underwent a significant depeg event earlier this week. This led to a 50% drop in its price, and the stablecoin is still struggling to recover, currently trading at $0.53.
Unlike centralized stablecoins like USDC and USD Tether (USDT), which are backed by real-world cash or cash equivalents, decentralized stablecoins are collateralized by cryptocurrencies and often operate based on algorithmic mechanisms.
Consequently, they are more susceptible to losing their peg because of fluctuations in market conditions or underlying assets. Past instances of this include depegs affecting USDX on the Kava blockchain and USDN on Waves.
A QiDAO spokesperson did not immediately respond to a request for comment.
