The total DAI supply has officially joined the three commas club hitting 1 billion over the weekend – congrats to the entire MakerDAO community on this amazing achievement! Its been quite the journey for MakerDAO and Dai with the original concept being announced way back in 2015 and the first mainnet product going live in December of 2017. Since then, DeFi has exploded in ways not even the most bullish supporters imagined – and DAI is still a central part of that story.
Now I know MakerDAO has been on the recieving end of many criticisms over the last few months for some decisions that the community considers questionable – especially surrounding the addition of poor or centralized collateral to the system. Maker’s founder, Rune Christensen, has argued in the past that the addition of this collateral is critical as it allows MakerDAO to grow much larger than it would have been able to with only ETH being used as collateral. I can sympathise with this view but there are of course “purists” who believe that the migration to multi-collateral Dai (MCD) was a mistake (I’m not really one of them though).
In saying that, it’s hard to argue that adding additional collateral types was responsible for the explosion in the DAI supply from 70 million at the start of the year to 1 billion today. This is because during the same time period, we saw DeFi usage explode as well and pretty much every chart you look at will look the same (up and to the right). Though in terms of which collateral type this growth in the DAI supply came from, it’s made up of ~38% ETH, ~41% USDC, ~11% WBTC and a bunch of other tokens which shows that the majority of collateral in the system is now non-ETH. It’s interesting to see USDC being the top collateral since it was originally added as a way to bring DAI back to its peg of $1 after the Black Thursday event.
On top of this, the MakerDAO system spent most of the year with stability fees turned off which meant it was free for users to mint DAI from a CDP (Vault). It also meant that no MKR was being burned from fee revenue which obviously led to the MKR token price not accruing much value which ultimately led to a bleed in MKR’s price (even during the DeFi token rally). Though over the last few weeks stability fees have been turned back on and there is already over $15 million of accrued fees that will go to buying and burning MKR.
Lastly, MakerDAO faced its greatest challenge in March 2020 when the keeper bots failed to liquidate underwater positions correctly so millions of dollars worth of collateral was able to be bought up for $0. This happened during the infamous Black Thursday event where the prices of BTC and ETH fell rapidly to test their prior bear market lows. The MakerDAO system then had to mint more MKR tokens and auction them off to cover the shortfall of capital in the system leading to a (temporary) loss of confidence in the overall system.
It’s obvious that, just like every other DeFi project, MakerDAO has many issues that it needs to work through but there’s no denying that there is real and growing demand for DAI – whether that be for trading, yield farming, use as collateral in other DeFi apps or using it as an actual currency for day-to-day payments. I’m looking forward to seeing where MakerDAO goes from here – onward to 2 billion DAI!
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.
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