Sky’s New Maker Stablecoin Criticized for ‘Freeze Function’

August 28, 2024 05:26 PM AEST | By Team Kalkine Media

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Maker, now rebranded as Sky, has recently introduced its new stablecoin, USDS, which has generated significant discussion within the decentralized finance (DeFi) community. The upgrade includes a feature known as the "freeze function," which allows the issuer to lock the token under certain conditions. This functionality has raised concerns about the decentralization of the protocol.

The freeze function is designed to comply with legal requirements from jurisdictions where Maker needs to ensure that the legal system will enforce recourse against real-world asset (RWA) collateral. According to a May forum post by Maker, this feature is intended to provide a high level of certainty in legal matters, particularly when the stablecoin is backed by US Treasuries. This move aligns with Maker's broader “Endgame” roadmap, which aims to scale up the stablecoin supply and compete with established players like {Tether} (USDT) .

The introduction of this feature has sparked criticism from some within the DeFi community. For instance, Monad marketer "Tunez" questioned whether the freeze function undermines the core principles of decentralization. The project's decision to block access via VPNs has further fueled skepticism about its commitment to decentralized values.

Adam Cochran of Cinneamhain Ventures defended the freeze function, arguing that such mechanisms are necessary for integrating stablecoins with real-world assets and achieving regulatory compliance. He noted that centralized stablecoins, like Tether, also possess similar capabilities. Tether, for example, has previously used its freeze function to lock tokens linked to phishing scams.

Sky's recent rebranding and the inclusion of the freeze function mark a strategic shift aimed at addressing regulatory and operational challenges while scaling its stablecoin to compete with other major players in the market. The evolving features of USDS reflect broader industry debates on the balance between decentralization and regulatory compliance.

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