With the recent change of MakerDAO to Sky and the migration of the MKR token to SKY and of DAI to USDS, several problems have appeared, notably on the access to the USDS which is banned in the US and UK and the most important :
The USDS has a “freeze” function which allows to block the use of the stablecoin to certain wallets and/or smart contracts
This change is against the very essence of Gnosis which is decentralization and permissionless use
2 questions arise :
if Sky decides to freeze wallet A on Ethereum mainnet, this same wallet A will no longer be able to pay gas fees on Gnosis since it is blacklisted ? (Dai contract = xDAI contract, so USDS = xUSDS contract)
the use of “USDS” which can be “frozen” goes against the philosophy of Gnosis, before us therefore interest in continuing to use the future USDS because it now resembles the USDT ?
Maybe this will have no impact on Gnosis and we are worrying a little for nothing but we can discuss it because it is important, it is the gas token of Gnosis
Replace xDai with another decentralized stablecoin—Rai, Hai, LUSD, crvUSD, or perhaps a basket of these currencies. This is beneficial for decentralized stablecoins because it drives higher demand for them, and theoretically, this option aligns most closely with our values.
Replace xDai with another centralized stablecoin—in this case, I’d like to explore the option of USDT. I find the combination of a decentralized L1 with the largest centralized stablecoin to be interesting, and I believe it’s worth exploring. Such a change would require a great deal of courage, but if we envision a future where Gnosis Chain becomes a major L1, it likely demands similarly bold moves.
Replace xDai with GNO.
Theoretically, there’s another option where MakerDAO could transfer control of Dai to us, meaning they would hand over governance powers to GnosisDAO, which would then continue to operate it. This is likely not technically feasible, but it’s unfortunate that MakerDAO would throw away the network effect that Dai has built. Given our strong connection to Dai, we are the most closely aligned with it, so if such an option were possible, we’re the only ones who could execute it.
Personally, I really like options 1) and 2).
With option 2), it’s probably something this community won’t favor, but I believe it has the most potential to drive higher user adoption on the Gnosis Chain. Of course, this would require a native implementation of USDT.
Effectively, Dai is currently centralized, and it hasn’t caused any issues.
Hello, thank for your answer, I will give my opinion for the 4 solutions :
Changing to another stablecoin seems to me to be the most feasible idea because it is already currently the case with DAI, I would personally obtain for the $FRAX, the team continues to build and the stablecoin has proven itself, then there is the $LUSD and the $GYD from Gyroscope which seems to me to be conceivable.
If there would be 1 centralized stablecoin to choose it would be the USDC because it is regulated in Europe and the Circle company is looking to be listed on the stock exchange in the USA.
Using $GNO is also a very good alternative because it will mirror the blockchain usage on $GNO, giving another utility to the token.
Solution 4 seems quite difficult to achieve but why not ?
Personally, option 3 and 2 seem the most feasible to me, for option 1 it will depend on the decentralized stablecoin that is used.
One thing is for sure…is that the Gnosis community must choose carefully because it is a somewhat delicate situation.
Anyway, thanks for your reply and I hope other people will join in the conversation.
Hello, we agree with the options mentioned above (apart from 4, which as was mentioned it is not technically feasible).
We would like to point out that we have been in touch with the Maker team, we were expecting this and there is no rush in making any changes, both DAI and sDAI will live for at least a significant period of time which means that we all have time to assess and discuss what’s the most suitable option for Gnosis.
Option 1:
Imo not feasible, because these coins won’t have the sufficient liquidity+broad adoption. If you switch to these stables, you will make it much harder for new users to join the ecosystem (no cex adoption etc.). You also face the classic depeg risks with these stables.
Option 2:
Imo also not feasible, if you just switch centralized stablecoins, why not stick to the one you are already using. The SKY team will offer farming rewards, they will have to market the stable coin etc., so you are automatically benefiting from a massive investment from the SKY team. USDC/USDT have a lot of liquidity, but they also have additional risks. With the SKY team you will have open governance, GNO can participate in the governance process and influence the direction. With Tether and Circle you just have to follow their decisions.
Option 3:
Probably the most reliable and safest option for the long term, although it requires a lot of work and you probably have to change the tokenomics? What I like about the current tokenomics design is that it separates the economic security of the chain and the gas token. If you switch to GNO as the gas token, your primary focus has to be on the liquidity side, so you will get more GNO on chain instead of GNO securing the chain. I don’t know if this will have a relevant impact on the plans of the core devs.
I already posted in the discord that I think that all stablecoins will get regulated in the future. They will use them as a tool to finance the deficits and of course they will force them to have freeze functions (the usual explanations->terrorism, crime etc.). Therefore I suggest another option:
From what I understand DAI would continue to exist and we do not have to convert the tokens in the bridge just yet or maybe ever. The only thing that would change after USDS goes live is that DAI in the Gnosis bridge would no lose it’s yield to the new USDS token (maybe not all at once), hence making the sDAI token on Gnosis undesirable for DeFi without the yield.
I don’t think it’s wise to wait and do nothing. When xDai was created, Dai was the major decentralized stablecoin with a promising future ahead. What are Dai’s prospects today? What’s the point in sticking with it any longer?
All options are better than doing nothing.
Of course, we could migrate to USDS, but why switch to a new centralized stablecoin without network effects? In that case, it’s clearly better to choose the largest player on the market, meaning USDT or USDC.
Another option that comes to mind is creating our own decentralized stablecoin (for example, forking Rai). The advantage would be that we would have a “large” market for it from the start, potentially creating a leader among decentralized stablecoins.
A stable gas token has been one of the main drivers that has set Gnosis apart from other networks. With Arbitrum now implementing a USDC gas token option for orbit chains, Gnosis has to either try and compete with them or further innovate. RAI could be that radical innovation.
If not a stable then ETH or GNO - ETH for alignment / GNO for congruence and number go up.
Sorry I’m not old enough in the ecosystem to be more precise:
it’s a gathering between the Gnosis Protocol community and DAI to launch a blockchain capable of being cheaper than Eth and paying fees in stablecoins
How about a native RAI friendly-fork with only hard assets as collateral (i.e. GNO, sGNO, WETH, wstETH)?
It would give GNO another form of utility. I don’t know how it would impact the validator size though.
monet from BA Labs checking in (disclosure we are a service provider for Sky / Maker). I’m obviously a bit biased but I think the default choice, unless the community can align on something that is clearly better, should be to continue working with and using Sky / Maker stablecoin products. I have tried to address some of the comments in the above thread. All of the following is my personal opinion, not intended or offered as investment advice, professional recommendation, or solicitation.
TL;DR
Alternative defi stablecoins are unsuitable for use backing xDAI due to various combinations of: similar centralization risk to USDS, low liquidity and market cap, fundamental scalability issues, or worse risk/reward
Centralized stablecoins like Tether offer no clear advantage of centralization risk, while removing a key Gnosis DAO revenue source (via sDAI / sUSDS / DSR)
While using GNO as a gas token may make sense once account/fee abstraction is sufficiently advanced, it is not appropriate to swap user’s stablecoins for a volatile asset on the backend, so xDAI should still be backed by a USD stablecoin such as sDAI / sUSDS
There is no need to make changes to xDAI reserve backing at this time, sDAI will continue to work as it has for the foreseeable future
Details
Firstly to address this- NO freezing an address on mainnet will not automatically freeze that address on Gnosis Chain. Also want to note that while the USDS token is upgradable, it will not have a freeze function implemented at launch, and any upgrade to add a freeze function will go through the standard governance timelock which provides some amount of notice to end users.
Will make some comments on these in turn.
RAI / HAI style stablecoins are ideologically quite appealing via their purity and the underlying controller mechanism is quite elegant. But, at present both of them are extremely small in scale, and it is challenging to scale up supply (minting against crypto collateral assets) to meet increases in demand. Gnosis would not be able to purchase more than a few hundred thousand $ of each asset before causing an upward depeg of market price vs redemption price, and this in turn would result in significant negative interest rates. Basically, these products do not have sufficient scale to meet Gnosis’s needs and are unlikely to attain the necessary scalability due to fundamental supply constraints.
LUSD (or potentially the upcoming v2 version BOLD) are also appealing for having pure/crypto native collateral. However, they have similar supply constraints, which result in price diverging upwards from the $1 peg in cases where there is large demand to hold the stablecoin. Additionally, LUSD v1 does not offer a native yield. While BOLD will offer a native yield, it will still suffer from similar supply limitations, and the yield will converge to 0% when demand exceeds supply (eg. if there is a huge price insensitive source of demand from Gnosis Chain). Similar to above, these products have fundamental limitations that prevent achieving the necessary scale for Gnosis’s usecase.
crvUSD has better scalability, but this is achieved by using centralized stablecoins as collateral via pegkeepers. So while it has the benefit of remaining a nonupgradable token with no freeze function, it faces similar pressures as Sky / Maker with respect to centralized collateral backing. crvUSD also has no native yield currently, with earning opportunities centered around Curve’s Llamalend lending protocol or stablecoin DEX pools. crvUSD is also fairly small with less than $100 million circulating, which would make Gnosis over half the supply if they chose to migrate xDAI to use it for backing; this creates increased concentration and liquidity risks. In my opinion crvUSD offers extremely limited advantages of censorship resistance, while sacrificing scale, liquidity, and native yield.
Other defi stablecoin options such as FRAX, DOLA, GHO or USDA have various combinations of the above drawbacks (limited scale, liquidity, lack of native yield, similar centralization risk factors, etc). Some stables also have additional risk factors such as negative equity from legacy operational issues. Nothing against these products, but I don’t think there is a decentralized stablecoin existing today that is a better fit than DAI / USDS.
I don’t see an advantage to making this switch. USDT has significantly greater centralization risk (100% of collateral is centralized, vs roughly 50% for DAI), and it already has a freeze function implemented (vs just potential for future upgrade with USDS). And USDT does not offer a sUSDT version to help power Gnosis’s defi ecosystem, compared to sDAI / sUSDS.
Part of the advantage and value prop of Gnosis Chain is being able to transact purely in stable currencies. This offers users a better UX. Perhaps in the future as account abstraction gains traction it would be possible to have fees paid in GNO at the chain level while users pay in stablecoins. In this case I don’t think it would necessarily change the way xDAI should work though - certainly don’t think it would be appropriate to just swap out stablecoin backing for xDAI into volatile GNO tokens, which would in some sense rug users by forcing them to invest into a volatile asset.
I don’t think this is technically feasible because the DAI token cannot be separated from the underlying backing/vaults/reserves which form a core part of the Sky / Maker ecosystem.
I’d like to also raise the following options for consideration:
Make no changes for now (xDAI remains backed by sDAI): Sky has committed to maintaining DAI for the foreseeable future, and any deprecation will have significant notice to the community. Basically there is no pressing need to make changes now, so a wait and see approach may be appropriate.
Upgrade backing to sUSDS once launched: Using the upgraded savings version of the USDS stablecoin as backing (sUSDS) can be considered. The token upgrades are reversible so funds could be put back into DAI / sDAI later if Gnosis DAO changes its mind. Additionally, Gnosis may be able to use some of the bridge USDS funds to farm Stars (SubDAO tokens like Spark SPK) instead of earning the savings rate, which would allow Gnosis DAO to accumulate a strategic position in these projects.
In conclusion, it is my personal opinion that Sky / Maker stablecoin products (sDAI, and in the future sUSDS once launched) remain the best fit for Gnosis Chain. Upcoming roadmap items for Sky protocol may offer exciting new opportunities for collaboration between Sky and the Gnosis Chain ecosystem.
Obviously the Gnosis community needs to make the choice that is in the best interest of the community and most aligned with its long term vision, but I just want to jump in and provide some clarification and data in addition to what @monetsupply posted above.
First, and most importantly, is to emphasize that Dai is not going away. sDai will not even be impacted any time soon, although over a period of likely at least 1-2 years, eventually the rewards from sDai will become significantly lower than the rewards from sUSDS.
The second point I want to make is that the likely future ability to freeze USDS is ultimately for the purpose of making what is fundamentally an RWA-backed stablecoin more resilient. It is just necessary that if you want to scale up a large financial system by leveraging the rule of law and legal infrastructure of the top jurisdictions, you need to be able to prevent directly aggravating those jurisdictions. And without a freeze function, if a decentralized stablecoin reaches a large enough scale, this starts to become a risk. Dai is already backed by RWA, so USDS will only become more resilient than Dai, especially at larger scale.
Also keep in mind that freeze functions are never meant to be used to freeze smart contracts like a bridge, or uniswap or similar. It is really more of a deterrent to not have blatant misuse that puts at risk the stablecoin systems good standing with the jurisdictions that protects their collateral. This also means that in the worst case scenarios it is a possibility to move collateral out of unstable jurisdictions to avoid having to use a freeze function in obviously bad situations.
Sky will also offer a purely decentralized stablecoin in the future: PureDai (as described in the post above). However it’s important to understand the cost of choosing a purely decentralized stablecoin such as PureDai or other alternatives, they are making very steep tradeoffs and may not be able to provide consistent rewards or maintain a 1:1 USD peg if they scale.
Finally I want to make the case that USDS is fundamentally designed to serve as the ideal decentralized stablecoin for ecosystems like gnosis.
The main reason is that one of the main unique value propositions of gnosis is the rewards users get from holding xDai. USDS is optimized to be able to continue to power these rewards, sustainably even if the system grows massively, by safely tapping into RWA collateral as needed, without introducing regulatory risk over time regardless of scale.
There are multiple options: Sky Savings Rate and the Sky Token Rewards - As mentioned in the post above, gnosis could also choose to receive SKY or SPK tokens with their USDS rather than just a savings rate. On top of these features, large integrators like Gnosis can also receive the Accessibility Reward, which would give Gnosis an additional 0.4% rewards on top of either the SSR or the STR. Here’s more about how to get signed up for the Accessibility Reward First Wave Integrator Program - General Discussion - The Maker Forum
Sky is handing over almost the entire profit margin of the stablecoin business to large integrators, for the sake of trying to make the DeFi as scalable and economically efficient as possible.
I think it’s important to keep these things in mind. It may be that most users will prefer better rewards and certainty around legal resilience.
My arguments are pretty similar to the ones from monet-supply, if you want to keep a stablecoin as the gas token, I don’t see many benefits in switching the stablecoin. The only real alternatives are ETH and GNO in my opinion.
The question is if we can implement both stablecoins as the gas tokens for GNO chain, so pureDAI could be used as a backup gas token. I guess it depends on the contract design and how different the contracts are, but if the contracts were pretty similar it might not be a big problem to integrate it?
In theory we could just back the xDAI on chain with pureDAI? I would love to hear some feedback on this topic.
I think this is the perfect time to move to GNO as the gas token of Gnosis Chain. Why rely on 3rd parties for such a strategically important function? Why add dependencies on outside entities when we can have full control through our native GNO token? And this will immediately add more utility to the token, as well. Win-win!
Is it still true that a major value prop of Gnosis Chain is being able to transact in stables? I can see this being a novel approach 4-5 years ago, but today? When I first began to be active on Gnosis, I needed to purchase a few dollars of xDAI. I still have a balance, even though I use the chain fairly often. Would my user experience be any different if I had to originally purchase a few dollars of GNO? No, not at all. I never even think about it, tbh.
The primary advantage of EVM chains is, imo, censorship resistance. The Gnosis community has built a huge validator network, we have a highly decentralized chain. We remain tightly aligned with Ethereum and its core values. And yet we want to outsource our gas token to 3rd parties? Seems like a strategic mistake.
I really don’t believe people flock to Gnosis Chain because our gas token is a stablecoin. I certainly didn’t. I’m here because of Gnosis Pay, Monerium, EURe, and my ability to do basic DeFi (save, earn, etc.), all on a highly decentralized chain. None of that will be negatively impacted by using GNO as a gas token. And we have complete and total control over GNO’s properties. What’s not to love?
I believe MakerDAO/Sky is a huge positive for crypto. I hope they succeed, and I want their assets on Gnosis Chain, definitely! Investors should have greater choice.
But liking their tokens as investment vehicles does not mean I want to create a core dependency with Sky on Gnosis Chain. For the long-term health and viability of our network, for maximum censorship resistance, our gas token should be one we fully control: GNO.
The main points have already been covered above. I just want to add one thing: I don’t think stablecoin as gas fee is a significant advantage of the gnosis chain – I even doubt whether it’s an advantage at all.
Imagine any current L1 or L2. Do you think that if they switched to stablecoin as gas, its usage and use cases would significantly increase? I don’t think so.
Moreover, personally, I feel that xDAI has always been the strangest part of the entire Gnosis chain. Imagine a decentralized, censorship-resistant network comparable to the eth mainnet, yet constrained by a token that runs on another chain and is managed by another DAO…
Also, I get that products like Gnosis Pay rely on GC’s ultra-low gas fees (sub cents). But this doesn’t necessarily prevent a switch to GNO. If gas fees were to rise significantly one day, it would suggest that some network effects have already taken hold, and the appeal might surpass that of low-cost gas fees.
