As the news came out that Circle had USD deposits on Silicon Valley bank, the gm Portfolio attempted to divest itself of USDC. By the time the multi-sig owners came together for a trade on the afternoon of March 10, 2023, the potential loss for conversion into USDT via the Curve Finance 3pool was about 1%.

We made the rushed decision to instead switch to DAI. Our reasoning, probably flawed in retrospect, is that it was at the time roughly 40% backed by USDC but 150% over-collateralized so even if USDC were to depeg, there would be plenty of “cushion” for DAI to maintain its peg.

Ultimately, the plan did not work as intended since DAI increased its USDC backing during the drama and depegged nearly 1:1 with USDC. Fortunately, USDC repegged as Silicon Valley deposits were rescued, and the gm Portfolio re-invested into USDC. The round trip cost us roughly 3 basis points, and our holdings now stand at 5,998,325 USDC.

Lessons learned:

1. Clearly DAI does not work like we thought it did and has too much exposure to USDC. At this point, one might think of it as simply wrapped USDC.

2. The entire DeFI ecosystem has a fragile existence due to over-reliance on USDC. If DAI is wrapped USDC, and FRAX is wrapped USDC, and USDT has who-knows-what backing it… where is a decentralization maxi to turn?

3. First-mover advantages are huge in DeFi. LUSD seems to be the most decentralized stablecoin, vastly superior in design to DAI, and yet there’s not nearly enough liquidity for even a small portfolio like ours to use it.