The world’s first algorithmically stable currency has reached a milestone after a limit of $50 million was reached. A representative from MakerDAO says:
“There was a sudden spike in CDP creation and we saw, in the span of just a few hours, the largest amount of Dai created in the shortest time in our history.
A total of 7 Million Dai was drawn across a few CDPs representing a 16.27% increase in circulating Dai.”
Maker is or has ambitions to be a Decentralized Autonomous Organization (DAO). When it comes to such decisions as to whether it is safe or otherwise to raise the limit, token holders vote.
The vote in this case was criticized for not being well publicized before hand, but the sudden increase in new dai caught them off guard, so they had to move fast with those who voted deciding to increase the limit to $100 million dai.
That limit is placed there because the algorithmic currency is still very new, just months old, with it all running on bleeding edge smart contracts.
So far it has managed to do something unseen in history. In a decentralized manner, fully transparently, without anyone’s control or direction, a stable currency has been created.
The idea here is simple. You take some eth, you lock them in a collateralized debt position through ethereum’s blockchain, and you get dai dollars.
If eth increases in value, then you’re fine or you can take more dai dollars, but if it falls, you might need to pay back the dai. If you don’t, the contract might close and you might lose some eth.
Going through the above process, however, isn’t that simple. You need weth and peth and all sorts of things, but we did manage to do so when we test-runned dai, and after you do it once it then becomes child play.
The currency aspect here might ironically be the least interesting part. Ethtraders are constantly discovering new things about this complicated yet simple machine.
One such discovery is that the amount of collateralization can act as a sort of prediction market for eth’s price. While the earliest discovery is of course that you can leverage to the hilt and lose big or make it big.
That’s because you can lock the eth, get dai, then buy more eth, potentially even lock that new eth, get dai, and so on. Yet if price goes against you, you have very little room to maneuver.
Not much different than margins, basically. The higher the leveraged amount, or the more you are borrowing, the higher the risk as well as the potential reward.
The difference here is of course that this is all transparent. So one needs not trust an exchange’s admin who might play with the database to the point it makes no sense as happened in MT Gox.
Nor need you have a privileged insider class in exchange operators who can see what everyone is doing, while the rest can’t, so giving them much privileged information which in turn is power which in turn necessarily leads to abuse.
And certainly you don’t need fake audits, or real ones except for the analysis of the smart contract. There is no trusted party here holding money effectively in a secret way for we don’t know whether something like tether has the billions some law firm claims they have or not.
Yet the other side is this needs to grow a bit slower than something like tether can. It is all code and for code to be trusted it needs time, but bitcoin and ethereum have now proven that code can be trusted and can be effectively completely secure.
So our lucky children will be able to enjoy a far more flat world, where if nothing else, we’ll be able to see them and what they are doing just as they currently see everything we do. And we need trust them not one bit, in some aspects.