Maker price sustains above $3,700 as community debates over controversial proposal for higher profits

Maker Protocol (MKR) price is gaining 17% on week as the community of the native token of the Ethereum-based protocol is set to vote for a proposal that aims to boost a credit line for Ethena Labs, a DeFi protocol. The proposal, while controversial due to its increasing risks, could also increase profits from lending and support the token’s price.

Maker Protocol proposes boosting Ethena Labs credit line to $1 billion

A proposal in the Maker community suggests increasing the credit line extended to DeFi protocol Ethena Labs from $100 million to $1 billion. The reason behind the massive increase in credit is that users have fully utilized the $100 million credit offered to them (on March 29), to leverage their exposure to Ethena Lab’s token airdrop and yield. 

Maker offered users the credit by depositing it in the form of DAI stablecoin (1DAI = $1) to Spark, its in-house lending product used to supply crypto. Maker is ready for a second liquidity injection, looking at the rising demand for credit by users seeking higher exposure to Ethena Lab’s assets. 

Maker’s move can be interpreted as one that boosts DAI adoption, while there is competition from stablecoins like USD Coin (USDC) and USDT (Tether) in the ecosystem. Maker mints DAI directly to meet its lending needs and this improves the stablecoin’s capital efficiency. It also gives the Ethereum-based DeFi protocol more control over DAI supply and its management, helping the stablecoin maintain its $1 peg. 

Why is the proposal significant for MKR holders?

On its initial $1 million allocation to users, Maker is set to earn over $55 million, as seen on Makerbur.com. In this context, the protocol is ready to capitalize on the demand for USDe/sUSDe and boost profits that Maker holders can earn through lending. 

Maker’s expected earnings from the $1 million in DAI allocation 

Why the controversy?

Some Maker community members are opposing the $1 billion debt ceiling for the protocol, asking for more control by Maker and some legal answerability. The proposal outlines the lack of transparency at Ethena’s end and how there is limited visibility of funds beyond the initial deposit. 

Community members are calling for a due diligence, citing that there is an overlap in investors between Maker, Spark, and Ethena Labs. They also recommended legal and technical risk assessments on the collateral before pushing the debt ceiling to $1 billion. 

Members point out that extending the credit line from $1 million to $1 billion within four days of the first disbursement feels rushed and needs a detailed review. 

While there is a likelihood that MKR holders earn higher profits from lending, if the proposal is passed, it cannot be overlooked that the additional credit introduces several risks and exposes users to lack of transparency at the end of Ethena Labs. 

At the time of writing, MKR price is up nearly 17% on the weekly timeframe. MKR is trading above $3,700 on Binance.