# How stablecoins impact Ethereum credible neutrality

Source: https://xcancel.com/Tiza4ThePeople/status/1899526283413135701?s=19

## Summary

Stablecoin issuers Circle and Tether could effectively decide which Ethereum chain is valid, undermining its credible neutrality. In a hypothetical compromise of USDC's admin key that mints about $3B, Circle, which has $60B of USDC on EVM chains, could pause USDC and propose a hard fork. Protocols like Maker, with at least $3.7B in bad debt in that scenario, would then have to back the fork or absorb losses. Circle publicly stated in 2022, during the Merge, that "USDC as an Ethereum asset can only exist as a single valid version." Staking and governance attacks are possible but more complex, whereas Circle and Tether remain within regulators' reach.

## Article

Let's run a little thought experiment:
Imagine someone managed to compromise the USDC admin key and mint, say, ~$3B.

That USDC would be immediately sold for uncensorable assets (BTC, ETH, DAI, etc). Circle would, as soon as they can, pause() USDC while they decide their next step.

As far as I see it, they would have two options:
-take the hit, scramble to raise $3B
-propose a hard fork

Being USDC, and having $60B on EVM chains, they have special leverage in this situation.

If they choose to hard fork, whatever chain they back as canonical is the one that will be able to redeem the $60B in collateral.

This means that almost all protocols that rely on USDC maintaining its USD price—which are almost all—will, in turn, have two options:
-support the hard fork
-take the hit

For example:
-Maker would have at least $3.7B in bad debt
-Arbitrum would have $3.8B in worthless USDC
-Hyperliquid would wipe all of its $2.5B in deposits
-AAVE would have ~$1.05B in bad debt

In this scenario, it's incredibly hard to imagine all the users and DeFi projects choosing to essentially nuke their products and funds in order to maintain “Ethereum neutrality,” and they would instead fight tooth and nail for this hard fork to reach consensus, and of course choose themselves the Circle-chain as the canonical Ethereum.

Now, replace the “USDC admin compromise” with “US government mandate over Circle and Tether,” and tell me how Ethereum is credibly neutral.

There’s precedent for centralized stablecoin issuers effectively choosing “valid” consensus.
Circle publicly declared support for Proof-of-Stake during the 2022 Merge, stating that “USDC as an Ethereum asset can only exist as a single valid version.” 

One has to wonder: would the Merge have happened on the same timeline if neither Circle nor Tether had agreed to migrate their stablecoin backing to the PoS chain?

To be fair, a similar type of attack is possible through Ethereum’s staking and governance infrastructure, but it is much more complex to orchestrate. 
In contrast, Circle and Tether are always within the regulator’s reach, making their reach on Ethereum consensus far more direct and immediate.

## Comments

**macbudkowski.eth**: We generally don't share FUD here but I don't think this is one - seems like a valid concern, not much different from concerns over Lido.

I think it's good to know this attack vector and take it into account.

**rvolz.eth**: Nice to see that it's not only a problem for Ethereum: https://bitcoinmagazine.com/takes/stablecoins-are-the-cbdcs