The Incident/Update
Eight days after MakerDAO launched its most ambitious protocol upgrade, the decentralized finance ecosystem is still absorbing the implications. On November 18, 2019, Multi-Collateral DAI (MCD) went live on the Ethereum mainnet, fundamentally changing how the flagship decentralized stablecoin operates. For over two years, DAI existed in its single-collateral form — backed exclusively by Ether (ETH). The MCD upgrade shattered that limitation, opening the vault doors to Basic Attention Token (BAT) and USD Coin (USDC) as additional collateral types, with a governance framework designed to approve more assets over time.
As of November 26, 2019, ETH trades at $148.97 while BTC hovers near $7,218, according to CoinMarketCap data. The broader crypto market is experiencing a relief rally, adding approximately $16 billion in global market capitalization over the past 24 hours, fueled by renewed optimism around US-China trade negotiations. This improving macro backdrop provides an interesting contrast to the DeFi sector’s internal evolution — while public markets chase trade war headlines, MakerDAO is quietly rewriting the rules of decentralized lending.
Technical Post-Mortem
The transition from Single-Collateral DAI (SAI) to Multi-Collateral DAI represents a complete architectural overhaul. The original system relied on a single collateral type — ETH — locked in Collateralized Debt Positions (CDPs). MCD replaces CDPs with “Vaults,” a more flexible structure where users can generate DAI against multiple approved collateral types simultaneously. Each collateral type carries its own risk parameters, including stability fees, liquidation ratios, and debt ceilings, all governed by MKR token holders through on-chain votes.
The most significant technical innovation is the Dai Savings Rate (DSR), a native smart contract that allows DAI holders to earn a return simply by locking their tokens. Before MCD, holding DAI generated zero yield — it was purely a stable medium of exchange. The DSR transforms DAI into a yield-bearing asset, creating a powerful incentive loop: users lock collateral to mint DAI, then deposit that DAI into the DSR to earn interest. This mechanism directly competes with traditional savings accounts and marks DeFi’s most credible attempt at a decentralized interest rate.
Behind the scenes, the migration from SAI to DAI requires active participation from users. Old CDPs must be manually migrated to the new Vault system, and the SAI-to-DAI conversion happens through a dedicated migration contract. The process is deliberately gradual — MakerDAO governance has set parameters to avoid forced liquidation during the transition, but users who fail to migrate eventually face increasing stability fees on legacy positions.
Governance Impact
The MCD launch represents a watershed moment for decentralized governance. MKR holders now face decisions far more complex than adjusting a single stability fee. Each new collateral type requires a full risk assessment, including correlation analysis with existing collateral, liquidity evaluation, and stress testing under various market scenarios. The introduction of BAT and USDC as initial collateral types alongside ETH signals a deliberate strategy: diversify risk by combining a volatile native token (ETH), an advertising-focused utility token (BAT), and a fiat-backed stablecoin (USDC).
This tri-collateral approach creates new governance challenges. What happens if USDC — a centrally issued stablecoin controlled by Centre (a consortium of Circle and Coinbase) — faces regulatory pressure? Can MakerDAO’s governance respond quickly enough to adjust parameters if one collateral type experiences a black swan event? These questions remain unresolved as the system enters its first full week of multi-collateral operation, but they will define the protocol’s resilience for years to come.
The broader DeFi governance landscape is still nascent. Compound, another major lending protocol, raised an additional $25 million in funding in November 2019, signaling that institutional capital continues flowing into decentralized lending infrastructure. The competition between MakerDAO and emerging protocols for mindshare, liquidity, and governance participation is intensifying.
TVL Shifts
Total Value Locked in DeFi protocols sat at approximately $678 million as 2019 wound toward its close, with MakerDAO commanding the largest share. The MCD launch introduces new dynamics to TVL measurement. With multiple collateral types now accepted, the total collateral deposited in MakerDAO Vaults is expected to grow as users gain flexibility in how they generate DAI. The DSR is already attracting deposits from DAI holders who previously had no incentive to keep their stablecoins within the Maker ecosystem.
The introduction of USDC as collateral is particularly noteworthy for TVL metrics. A fiat-backed stablecoin provides a fundamentally different risk profile compared to ETH or BAT. If USDC adoption within MakerDAO grows significantly, it could attract institutional capital that was previously hesitant about crypto-native volatility. However, it also creates a paradox: a “decentralized” stablecoin partially backed by a centralized one. The DeFi community is actively debating whether this tradeoff strengthens or undermines MakerDAO’s core value proposition.
Early data suggests the migration from SAI to DAI is proceeding steadily but not explosively. Many large CDP holders are taking a cautious approach, monitoring the new system’s stability before committing significant capital. This measured adoption is likely healthy — a slow, deliberate migration reduces the risk of systemic issues that could emerge under sudden stress.
Long-Term Prognosis
MakerDAO’s Multi-Collateral DAI upgrade is arguably the most important DeFi development of 2019. It transforms DAI from a single-purpose stablecoin into a sophisticated financial instrument with native yield generation and diversified collateral backing. The DSR alone could reshape how crypto users think about savings — for the first time, holding a stablecoin generates returns without relying on a centralized custodian.
The risks are real but manageable. Smart contract vulnerabilities remain the primary concern — the MCD system is significantly more complex than its predecessor, and complexity is the enemy of security. Governance attacks, where a malicious actor accumulates enough MKR to manipulate protocol parameters, represent another vector. And the inclusion of centralized assets like USDC introduces regulatory attack surfaces that purely crypto-native systems avoid.
Looking ahead, the success of MCD will be measured by adoption metrics: how quickly users migrate from SAI, how much new collateral flows into Vaults, and whether the DSR attracts capital from outside the existing DeFi ecosystem. If MakerDAO navigates these early weeks without critical incidents, the protocol will enter 2020 positioned as the undisputed backbone of decentralized finance — a title it has held since inception but now must defend against an increasingly crowded field of competitors.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
adding USDC as collateral was the controversial choice nobody wanted to talk about. a decentralized stablecoin backed by a centralized one
Luca M. calling it controversial is generous. adding USDC was a survival move after black thursday nearly liquidated every CDP. decentralization was always marketing
adding usdc was pure survival after black thursday not some grand plan
cdp_mechanic_ calling it survival is exactly right. if they hadnt added USDC before march 2020 the system would have cascaded. the decentralization marketing was always retrospective
cdp_veteran_ calling it survival is exactly right. without USDC backing before march 2020 DAI would have cascaded into a death spiral. the decentralization story was always retroactive marketing
black_thu_ the USDC addition saved DAI but it also killed the decentralized stablecoin thesis. maker basically became a wrapped USDC with extra volatility
Luca nails it. USDC backing for DAI was the original sin that started the whole centralization debate. we just normalized it
normalized it and then DAI became 50%+ USDC-backed during the march 2020 crash. so much for decentralization
dai 50%+ usdc backed after black thursday killed the decentralization story
eth at 148.97 and btc at 7218. people were actually building real defi back then instead of launching memecoins on l2s
bat as first non eth collateral aged like milk. usdc backing was the real move everyone just pretended it wasnt centralized for years
ETH at $148 during the MCD launch and people were still building. those were the real ones
ETH at 148 during MCD launch and people were still building – yakmaxi is right, those devs carried the entire DeFi ecosystem on their backs
ETH under $150 and people were building yield protocols, stablecoins, lending platforms. peak builder energy
eth under 150 and people already building yield stuff around the new dai setup
BAT as collateral lasted what, six months before it became clear it was too volatile? the real winner was USDC by default
BAT as collateral was the real experiment. it tanked shortly after and nobody talks about how close that put DAI to undercollateralization
bat and usdc as collateral at 148 eth is the real first test for multi collateral dai
pavel.kratochvil BAT nearly blew up the system before it even got started. the liquidation parameters on non-ETH collateral were way too loose early on. they got lucky with timing
BAT as the first non-ETH collateral was a weird choice. low liquidity and volatile. they basically stress tested the system with one of the worst possible assets
Stellan J. BAT as first collateral after ETH was political. the BAT team had connections and maker needed a win after single collateral dai stalled for 2 years
Tomasz W. BAT liquidation params being too loose is an understatement. the system basically got lucky with timing. if the march 2020 crash had hit before USDC was added the whole thing might have cascaded
bat collateral tanked and almost caused undercollateralization cascade
adding USDC as collateral was the real game changer for MCD. gave DAI a stability anchor that pure ETH collateralization could never provide during liquidation cascades
vault_rate_watcher_ disagree. the SF stability fee adjustments did more for the peg than any collateral type. the collateral mix was secondary to the rate mechanism
BAT as collateral lasted what, two years before governance removed it? the asset selection process was so opaque early on. USDC survived because Circle had the lobbying muscle