For long-time readers of this letter, you certainly know the two major decentralized stablecoin providers, MakerDAO and Terra.
Both tethers (USDT) and USD coins (USDC) are much larger than both of these projects, but they fail decentralized testing.
MakerDAO is behind stablecoinDAI and Terra is behind the fast-growing USTstablecoin. And while Terra delayed entry into the scene (Maker debuted in 2014 and DAI arrived in 2017), UST recently crowned as the largest decentralized stablecoin by market capitalization. I got it.
For reference, USDT has a market capitalization of $ 80.8 billion, USDC has a market capitalization of $ 52.4 billion, Terra has a market capitalization of $ 15.8 billion, and DAI has a market capitalization of $ 9.3 billion.
As you can see, UST took the lead in December. At the time, some might have thought it was just a fluke, similar to various other flash-in-the-pans table coin attempts from the past.
However, since then, UST has continued to surge.
And just as the size of Stablecoin has skyrocketed, so has Terra’s governance token LUNA. It has become one of the top 10 cryptocurrencies by market capitalization, ahead of Cardano, Solana and Avalanche. Since UST overtook DAI on December 20, LUNA prices have risen from about $ 78 to today’s $ 93.5. This is a 19% increase.
It’s no wonder that these two assets rise in parallel. This is because the LUNA is destroyed every time more USTs are created.
And as long as the Terra-based DeFi ecosystem is expanding and the demand for native stablecoin is increasing, a large amount of LUNA is being destroyed (that is, less is available on the market).
For more information on how Terra works, see Learn’s article on this subject.
Terra’s growth has shocked many, but probably not as much as MakerDAO. And now the project is finally running.
MakerDAO is currently considering implementing a new update to improve the adoption of Stablecoin and rethink the tokenomics of native MKR tokens.
A very likely excuse for this wave of change is to bring DeFi’s original central bank back to the top.
One of the proposals being discussed is to turn the MKR into a kind of voting lock token similar to the Curve and Yearn “ve-” models. This means that you need to bet MKR tokens to participate in various governance proposals. In exchange, you will receive “stkMKR” and voting rights.
But more importantly, those who bet on MKR tokens will also be given additional MKR (similar to betting and harvest farming rewards).
These rewards are generated through a surplus auction, a Maker event that is triggered each time the DAI becomes surplus. The excess DAI will be sold to MKR and, according to this proposal, part of this auction will be diverted to stkMKR holders.
The idea behind this redesign is that users 1) buy MKR so they can bet and participate in MakerDAO governance, 2) bet MKR tokens to move out of the market and create non-seller bands, 3). It is to guide the user to create it. Juicy incentives such as APR for staking.
Another update was the addition of stETH-ETH Liquidity Provisioning (LP) tokens as collateral for MakerDAO.
Immediately, Maker mint DAI with over-collateralized collateral in case you forget how Maker works.
Do you want DAI? Next, you need to deposit at least 100% of any other cryptocurrency, such as Ethereum, Wrapped Bitcoin, Uniswap, etc.
Adding stETH-ETH LP tokens will make the list of eligible collateral a little longer.
This is a particularly interesting inclusion, as it also shows that traditional conservative (at least DeFi) projects carry a little more risk than before.
The reason this particular asset is more risky than common cryptocurrencies is that it relies on two other cryptocurrency projects. The mechanism is as follows.
First, you need to bet Ethereum on Lido Finance and get stETH in return. Then deposit that stETH into the Curve Finance stETH pool to get a stETH-ETHLP token. Finally, you can deposit the LP tokens in MakerDAO and Mintha DAI Stablecoin.
Then either get those stablecoins and buy more cryptocurrencies, or keep those stablecoins in the spotlight with another lending protocol, or just rinse until you get the maximum leverage. , The circuit from stETH to DAI can be repeated.
Of course, the final proposal is a big risk. If ETH falls and you drag the value of that LP token below the 155% collateral ratio set by Maker, it will be settled.
The final proposal, and perhaps the most controversial, was to onboard more real-world assets (RWA) as collateral for the Maker protocol.
“It’s time for the Maker protocol to take bold action and seed the next phase of DeFi,” tweeted Maker’s protocol engineer hexanat, who contributed to the proposal. “The bull market was kind to all of us, but that time is gone. We need to take the next step and start mass integration with the real world.”
Therefore, like the stETH-ETH LP token above, hexanat (and the other two) has proposed opening a collateral pool for assets such as real estate loans and debt loans. This means that you can create a DAI using something that is not encrypted.
And there are already protocols built to bridge these two worlds, including Centrifuge, which has already cast over $ 78 million in DAI using these types of assets.
And to make this less risky for Maker, hexanat suggested another change to Maker. Remove the current write mechanism and increase the surplus.
“We suggest this first step to stop burns and focus on building large system surpluses,” they write. “By refocusing all profits on the surplus buffer, we can risk the protocol without causing existential threats like flop auctions.”
Excess burning, as briefly explained above, uses surplus DAI in the market to buy MKR tokens and burn those tokens (cryptocurrency means destruction). The latest proposal wants to eliminate this mechanism and run the surplus so that the protocol has enough liquidity to accept more risk.
With more money sloshing, a Black Swan event similar to what happened in March 2020 (when DAI temporarily lost the dollar peg) could be more mitigated.
Well, at least it’s an idea. And, of course, overtake Terra.
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