Umee brings Dai DAI/USD into the Cosmos ATOM/USD Ecosystem, in partnership with MakerDAO MKR/USD. As a borrowing and lending DeFi hub, Umee seeks to facilitate seamless cross-chain operations.
What Happened: As of June 8th 2022, Umee, partnered with MakerDAO, is bringing Dai to the Cosmos Ecosystem. This stablecoin integration facilitates cross-chain interoperability, by chaining Ethereum ETH/USD assets into Cosmos and vice versa.
DAI was selected by Umee, as explained by Brent Xu, founder of Umee for the following reason: “We chose DAI because the results speak for themselves: it is a durable product that has survived many market downturns. This is because MakerDAO considerably overcompensates for systemic risk by requiring an over-collateralization of Ether and other liquid crypto assets while using an aggressive interest rate mechanism to reinforce the peg.”
Essentially, the DeFi lending hub looks to strengthen the Cosmos ecosystem with an effective and securely backed stablecoin.
Why it's important: In a post-Terra LUNA/USD landscape, there is major investor uncertainty surrounding stablecoins. The sharp crash in Luna was a result of the infamous de-pegging of their stablecoin, as a result of an algorithmic fault.
Umee is presenting Dai, a stablecoin with a 5-year track record of reliability and stability, being generated from ‘Maker Vaults’ and backed by collateral assets, into the Cosmos ecosystem to ensure security.
Umee’s Gravity Bridge aims to steer Dai into the ecosystem of Cosmos, enabling its lending and borrowing activities. With a strong focus on security, Umee has ensured their bridge to be audited by Code4rena, Trail of Bits, Least Authority, and Informal.
Therefore, in order to regain retail and institutional investor confidence, Umee’s decision to focus on a collateralized asset will serve critical to their long term success.
As quoted by Xu, when asked about the benefit of collateralized stablecoins over algorithmic stablecoins: “As the past few weeks have shown, not all stablecoins are stable. Compared to the liquid nature of 1:1 fiat-collateralized stablecoins like USDC, algorithmic stablecoins suffer from suboptimal cryptoeconomic designs and are prone to de-pegging. This is why aggressive risk management measures, such as interest rate mechanisms and over-collateralization, are essential when developing viable stablecoins.
"One of the key flaws in Terra’s protocol design was that it did not fully-collateralize UST’s underlying assets to mitigate against inevitable market fluctuations,” Xu added.
What's Next: As Umee facilitates these DeFi services across chains, there will be an indisputable influx of further use cases for DeFi. Users of this protocol will be rewarded with improved functionality and a larger extent range of options. Furthermore, the emphasis on choosing a collateralized stablecoin will ensure the long-term security of the coin and the confidence of the investors.
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