The MakerDAO lending project has been Ethereum’s most successful decentralized finance app to date. But the project is embattled on the heels of its toughest week yet, and stakeholders are now scrambling for effective responses to right the ship.

The stage for the Maker community’s latest maneuverings was set last Thursday, March 13th, when a tanking ether (ETH) price, acutely high Ethereum gas prices, and a small window of anomalous activity let one Maker liquidator buy up nearly $5 million USD worth of liquidated ETH essentially for free.

Accordingly, the episode left Maker with nearly $5 million in protocol debt, as the lending system was expecting the liquidated ETH to be bought with an appropriate amount of Dai, Maker’s flagship dollar stablecoin, rather than for free.

To make up the protocol shortfall, Maker’s stakeholders set up an emergency auction for multiple lots of MKR governance tokens — currently valued at around around $200 each — for March 19th. However, another issue has arose ahead of that auction: an acute Dai liquidity crisis.

Major Dai Shortage: What to Do?

Market volatility and cryptoeconomy sell pressure has remained high since March 13th, two dynamics that have contributed to extreme short-term demand for Dai.

Indeed, demand for Dai has been so pronounced in recent days that the stablecoin has been consistently trading a few cents over $1, as Cyrus Younessi, Head of Risk at the Maker Foundation, said in a weekend proposal aimed at fixing the Dai supply crunch:

“The Dai peg has been trading as high as $1.10. Dai generation from [Maker] Vaults is low. Many in the community are buying Dai in order to participate in this upcoming Thursday’s MKR auction. Some are accumulating in order to pay down Dai debt in preparation for another downturn in the Eth price. There is an extreme ecosystem-wide shortage in the Dai supply.”

To mitigate that shortage, Maker’s Interim Risk team proposed three key maneuvers on March 15th. First, the dApp’s risk specialists recommended lowering the Dai Savings Rate (DSR) and Dai Stablity Fee (DSF) to 0% and 0.5% respectively, with the aim being to stimulate sales of Dai and thus bring more of the stablecoin back into the market.

Next, the risk team recommended lowering Maker’s Governance Security Module (GSM) from 24 hours down to 4 hours to ensure the project’s community can respond more quickly to market volatility issues. Lastly, the team proposed enacting a “decentralized circuit breaker” that MKR voters could use to pause Maker liquidations during network issues.

One day later, USDC — the dollar-pegged stablecoin backed by Circle and Coinbase — entered the Maker community’s emergency discussions, too.

USDC Collateral a Possibility

On March 16th, conversations broke out among Maker’s stakeholders about turning to USDC — another reputable stablecoin — to help productively stimulate the Dai supply.

The Maker protocol activated its Multi-Collateral Dai (MCD) system last November, which allowed more tokens beyond just ETH to be used as collateral to draw out automated Dai loans via Maker. However, only Basic Attention Token (BAT) has been added to the MCD to date.

Amid the current Dai supply crisis, an emergency Maker community call and proposal was put together early on March 16th over the possible addition of the USDC stablecoin to the MCD.

The idea? Adding support for USDC would lead to more users minting Dai from automated Maker Vault lending positions, which would help alleviate the current Dai supply crisis. As such, an emergency community MKR governance vote was scheduled for the evening of March 16th, indicating the urgency of the situation.

Notably, USDC isn’t as decentralized as the Dai, but it may be just what’s needed to help the Maker project right itself in the coming days.