A raft of withdrawals forced MakerDAO to spend half of the $500 million it holds in a Coinbase Custody account to protect the peg for its DAI stablecoin.

DAI’s USDC reserves — which needed to be above at least $200 million to be considered safe — nearly sank below $60 million Tuesday morning before the manager of Maker’s Coinbase trust transferred $250 million into DAI’s so-called peg stability module (PSM). 

The liquidity fire drill highlighted the permissioned process by which the largest decentralized stablecoin refills its reserves.

The PSM is a collateral pool that lets users mint DAI for USDC 1:1 and arbitrage DAI back to its dollar peg. If the PSM’s reserves empty out, DAI’s price could drift below a dollar.

“The likeliest outcome is nothing notable happens. The worst outcome would be a depegging of DAI for a few minutes to a few hours. But you’d observe the USDC flows on the relevant Coinbase addresses. The USDC would arrive any minute,” PaperImperium, the governance liaison at GFX Labs, said in a direct message.

Read more: MakerDAO sticks with USDC reserve despite calls for diversification

A Maker community member noticed on Saturday that the PSM’s funds had dropped below $300 million, which should trigger a transfer from Maker’s $500 million Coinbase Custody account. Allan Pedersen, CEO of Monetalis — an adviser appointed by Maker to work with real-world assets — then commented multiple times on the forum asking the trust management firm SHRM to fund the PSM. 

Monetalis was also obligated to email and call SHRM about the forum post, according to a Maker document outlining the process.

Over $100 million left the PSM between Sunday and Tuesday before the Coinbase Custody transfer arrived. A source familiar with the matter told Blockworks that the larger transfers out of the PSM seemed to be going towards centralized exchanges. 

On Maker’s forum, Pedersen wrote that teams are working to automate the PSM using smart contracts, “​​but, for now, the instruction-based automation using trustees, administrators, legal structures and banks/central exchanges is safe and stable.”

“This was a rather routine governance process where we maintained a good healthy balance of assets. During this situation, there was an additional 200 million worth of USDP and GUSD in the PSM,” Tadeo, developer relations at Maker’s Spark subDAO, said.

Updated Nov. 2, 2023 at 9:15 am ET: Clarified details about the PSM and the role of Monetalis add a comment from Maker. An earlier version of this article incorrectly referred to USDC withdrawals from the PSM as “liquidations.”

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