Maker’s Controversial New Stablecoin: USDS and the Freeze Function

What is USDS? 

USDS is a new stablecoin launched by Sky, the rebranded version of Maker. Stablecoins are a type of cryptocurrency designed to have a stable value, typically pegged to a fiat currency like the US dollar. USDS aims to provide stability while also being integrated with real-world assets (RWA), such as US Treasuries. This connection to real-world assets is part of Maker’s broader “Endgame” roadmap, which seeks to scale up the supply of its stablecoin and compete with established players like Tether. 

The Freeze Function Controversy 

The introduction of the freeze function in USDS has been the main source of controversy. This function gives the issuer the ability to freeze the token, potentially preventing users from transferring or using their USDS under certain circumstances. Many in the DeFi community view this as a significant deviation from the principles of decentralization and user autonomy. 

Key Points of Controversy 

Clarification from Sky’s Co-Founder 

Rune Christensen, co-founder of the Sky project, responded to these concerns in a post on X. He clarified that the freeze function would not be part of the initial launch of USDS. Instead, there will be an upgrade capability, meaning the feature could be introduced later. Christensen explained that if the freeze function is activated in the future, it would be done in accordance with legal requirements. This approach aligns with the project’s aim to back USDS with real-world assets like US Treasuries.  

Industry Reactions and Trade-offs 

The Sky project has blocked access to its website via VPNs. This move has further fueled criticism from the DeFi community, as VPN blocks are often seen as a tactic to control access and limit user freedom. Cochran noted that both the freeze function and VPN blocks represent choices that the industry needs to make, weighing the benefits of regulatory compliance against the ideals of decentralization. 

Moving Towards the “Endgame” 

The introduction of USDS and its potential freeze function aligns with Sky’s “Endgame” strategy. This roadmap aims to scale up the supply of its stablecoin and back it with real-world assets, positioning it as a competitor to Tether. By integrating USDS with US Treasuries and potentially introducing a freeze function, Sky seeks to create a stablecoin that appeals to both institutional investors and regulators. However, these changes have sparked a debate within the DeFi community about the future direction of the project and the broader implications for decentralization.