MakerDAO’s MKR token has been in a bull run against ethereum since summer 2018, reaching an all-time high against eth in October, to then continue making new highs.
The token has also been in a bull run against bitcoin, just making a new all time high now, a year after it topped against BTC in January 2018.
MKR’s price against bitcoin and ethereum, Feb 2019.
The token is now worth an incredible 4.6eth, partly due to its far more limited supply of just 1 million MKR as compared to eth’s more than 100 million.
MKR also doesn’t have much liquidity. It isn’t on Binance for example, but it is on OKEx, with it handling about $2 million worth of trading volumes in the past 24 hours.
These factors and others, however, also applied in the first half of 2018 when the coin was falling most visibly against BTC, but also against eth to a degree. So what changed?
Dai stats, Feb 2019.
One important thing that has changed is DAI’s market cap. It has been up and up, now nearing $85 million. That means MKR’s product, the DAI, is being used.
At the same time, there have been no problems. No hacks, no bugs, or anything else you’d expect for a very new thing which hasn’t existed before in this precise form.
That has gradually grown confidence, although we’d still caution that it should be expected something might go wrong and what would be surprising is if it doesn’t, rather than if it does.
Still the collateralized dollar pegged stable coin has been marching finely and has even opened an entire new field of decentralized finance which is one of the more interesting “sector” in eth’s current ecosystem.
Ethereans, The New Fed
The Maker token is the lender of last resort for the dai. If something goes wrong and all else fails, the MKR holders have to step up and “pay” to fix the system and keep dai still running at $1 per dai.
That’s comparable to shareholders who get their investment wiped out first if the company is in trouble. We also have votes here of the shareholders, but the analogy can only go so far. Here is Ben Sparango, a researcher at MultiCoin capital who we will quote in full:
“For those that couldn’t join the MakerDAO governance and risk call today, I just want to shed some light on how much more complicated some of these governance decisions are than may be superficial obvious.
The meat of the conversation today was regarding another Stability Fee increase in order to ease Dai demand and keep the system at equilibrium.
The discussion began by addressing how the Stability Fee was recently raised from 0.5% to 1.0% and how it seemingly had no effect on the Dai demand, as the Outstanding Dai Supply continued steadily on its linear growth.
Steven then made a fantastic point that, as the MakerDAO system moves forward to MCD, it is going to be imperative for them to have a framework of all the variables that contribute to Dai demand, beyond the economic costs of opening a CDP.
To illustrate this, he pointed out the fact that the ETH price has grown almost 50% in the time frame since the last Stability Fee raise hike.
Higher ETH price leads to:
1) more people drawing additional Dai against their CDP collateral and
2) more people interested in going levered long ETH.
Taking variables such as this into account, it is quite difficult to say that the recent stability fee raise had no effect on the ecosystem, and therefore its equally difficult for the MakerDAO team to confidently decide how to properly manage the stability of Dai moving forward.
I know many of us (myself included) want these systems to be robust right out of the gate. However, we sometimes require a gentle reminder how much of this space is heavily reliant on trial and error.”
So that sounds more like the Fed rather than shareholders, with discussion of parameters regarding supply, demand, and so on, managed through the interest rate or here the stability fee.
Realistically what we have is a council of sorts, or a governance call, where matters are discussed. Here anyone can take part as far as we’re aware, but obviously that won’t scale. Eventually you’d think there would be a Fed board sort of thing.
The difference here is that they only make a decision in as far as whether to put forward a proposal or not. The system could also allow for anyone to put forward a proposal, but realistically for it to have any legs, and get any votes, it probably has to be someone credible.
With the Fed, this is where the decision is made. If you don’t like their decision and you happen to be the President of the United States, Donald Trump, you can call them “loco” and hope they back down. Otherwise, the Fed is “king” in a “dictatorial” set-up.
With MKR, so far no decision has been made, it’s just a proposal. The matter is then put to a vote. So if you’re Trump, or anyone else, instead of shouting at the Fed chairman, you campaign for a yes or no vote.
Making it an interesting at least semi-solution to the problem of needing someone to make a decision while at the same time it so happens that someone is usually not close to the facts on the ground and can’t possibly have all the relevant facts.
There are drawbacks, however. The obvious one here is that the stability fee goes to MKR holders, so they’d want it to be as high as possible. DAI holders obviously would prefer it to be 0.
Dai Goes xDai
Finally beyond the growth of dai’s “plain” usage and its beginning of decision makings in a still developing governance model, the stable coin now has xDai.
That’s basically dai, but cloned through a sidechain bridge to make it usable in a new Proof of Authority (PoA) chain.
We tried to establish how this bridge works exactly, but have not received a response at time of publishing.
The Burner Wallet at @EthereumDenver was 🔥 AF!!! Smooth user onboarding powered 4405 meal purchases at $0.000046 USD per transaction means it cost $0.20 to run the entire event on xDai 😏 Plus, $38,432.56 off-ramped to food trucks! https://t.co/DPvPjFsa32 https://t.co/vjUJdcozgw
— 🛠️ Austin Griffith (@austingriffith) February 22, 2019
The aim is to allow for far more transacting capacity at practically no fee as PoA chains replace miners with trusted individuals or entities who you “know” won’t cheat you, with one such entity being MakerDAO itself.
So for coffee purchases where you might need less security, you can just add an x to your dai and transact as much as you like without really paying a fee and without having to deal with volatility save for any potential USD volatility.
Meaning DAI’s ecosystem is beginning to grow, with it now close to hitting a ceiling of $100 million. Whether that will be lifted any time soon, remains to be seen.