Maker’s market cap is nearing half a billion after rising 20% today to $635 on trading volumes of $1 million. Sending it close to the most valuable ethereum token, with just $26 million now standing between MKR and OmiseGo, the current top eth token.
The sudden jump doesn’t have any immediate cause as far as we can see, but in an ancillary manner it might be Maker’s attendance at EthSanFrancisco which is currently in progress.
It might also be related to DAI, Maker’s “product,” which has now entered top 100 after reaching its highest market cap ever at $58 million.
Maker, as you may know, is a Decentralized Autonomous Organization (DAO). The Maker token holders are a collective of sorts which decides on Dai aspects, like interest rates or fees.
In theory, all of this organization aspect is meant to run on a smart contract, but in practice it is very much a pioneering frontier so there are social layer aspects where token holders engage in governance.
Dai, on the other hand, runs fully on a smart contract and is autonomous within any reasonable meaning of that word.
Through complex algorithms, Dai turns eth into a stablecoin pegged to the dollar. That’s the current version, with it peggable to gold, or euros or whatever one might want.
Such “simple” peg will probably remain the focus of dai for the near to medium term, but the idea is a more abstract ambition to “peg” the value to prices for goods and services so as to generally keep the value of dai within the same purchasing power today as a decade from now.
That futuristic ambition that tries to give a go at implementing Hayek’s idea of good money as stated in the Denationalization of Money, probably is no where near and probably won’t be anywhere near for at least the next 5-10 years.
Yet what is here already is a non-volatile and a stable currency created out of eth collaterals whereby locking one eth gives you say 100 Dai which is worth $100 and remains worth $100 regardless of whether eth’s price goes to $20,000 or to $100.
That simple picture becomes a bit more complex in as far as if your one eth falls to say $150, the dai smart contract might ask you to either give it more eth, or might sell off your eth so as to secure the $100 in dai.
This in turn creates even more complexity because the stable value aspect can become secondary or backend in allowing banking like functions because now you don’t need to sell your eth if you want $100 fiat dollars.
You can instead lock say 1 eth into dai, get 100 dai, sell that for $100 worth of eth, send that 0.5eth to Coinbase and turn it into fiat dollars which you can then withdraw to your bank account and spend it as you like.
The downside here of course is that if eth’s price starts going downwards, then you have to put in more eth in dai or give it back the dai as otherwise it will sell your eth.
Yet that’s not really a downside under one assumption. If you are happy to sell your eth at say $200, then since you’ve drawn 200 dai, you have no reason to care if you do get called and the dai contract liquidates your eth.
That’s a simplified example, as is much of the above, because considering the current price of eth at circa $230, you’d probably need a buffer of $50 or so as you won’t have much room for maneuver otherwise and might get called in minutes, making it all a pointless accrual of fees.
The new idea however is that with dai, if you have decided to sell your eth, then you don’t actually have to sell your eth. You can lock it into dai, you can get the fiat, and then if you get called whatever, but if price goes up then you still have the eth.
So instead of finalizing your sale for $100 and that’s it, you can withdraw say $80, while still keeping that $100 dependent on how events unfold. If price goes down, then tough luck you just have this $80 and whatever pence you might have left in eth. If price instead becomes $200, well now you’ve made $100 while enjoying the immediate benefits and utility of the initial $100 you locked up.
What magic this is, we do not know, but conceptually it makes full sense. The way dai works at a high level is basically to attribute the dollar price of your eth holdings to the price of the dollar with 1 dai being 1 dollar. The price of eth changes, but the price of the dollar is relatively stable. So if your locked up eth fall to the price of dai you’ve withdrawn, then the eth is sold.
As the eth is sold only at the price which amounts to the dai dollars you have, it is basically no different to you yourself selling your eth on the market at that point. Instead of you mechanically bothering with it, the lovely little bots running on ethereum do the menial work.
There are of course fees which amount to an interest rate of about 0.5% and there may be buffers regarding when your eth is sold by the bots, so say $100 worth of locked up eth might not amount to exactly $100 worth of fiat, but it isn’t far off.
Some of these fees go to Maker, making Maker a kind of “owner” of the dai bots in as far as the “work” of dai bots translates into “profits” or “dividends” for the Maker holders who are meant to oversee the bots and who direct the bots in regards to how much they can charge and so on.
To translate this into far more crude language, the Maker token holders are the board or the executives of the company with all of them getting paid through the interest rate charged on the dai platform which operates automatically based on the rules within the smart contract code.
Some MKR tokens get burned based on the amount of interest rate that has been charged to the dai users. Thus, the humans overseeing the bots get paid for their work.
Making this the very first working implementation of something profound and something completely new which has never previously existed.
To succinctly articulate it is difficult, but a simple way is to perhaps say that in smart contracts there is no private key, there is no door, no entry point.
Of course there are fail safe mechanisms and the token holders can intervene, at least for now, but the smart contract is generally working by itself. There is no person to enter a private key to turn the contract on, like you need to enter a private key to transfer your eth from a to b. There is no requirement for human intervention. The code just works by itself, 24/7.
Because the smart contract is native, all the code surrounding it, the entire ethereum network, knows how much eth the smart contract has, and knows if the smart contract can transfer the eth or can do an action that is within the directions of the code or whether the smart contract is trying to do something unauthorized.
So the smart contract doesn’t need to enter a pin to transfer the eth that have been sent to it. The code is the pin. Nor can anyone make the smart contract transfer the eth unless it is within the rules of the code. Rules which the contract obeys automatically.
The smart contract thus becomes a living thing, with a life of its own, with its own autonomy, albeit we have told it exactly just what its life is and we have told it exactly just what it can do.
Within what we have told it, the thing no longer cares to listen to us, for regardless of our own opinion it must do what we initially said, its fierce loyalty heeding not what we now think of it, unless of course we discard our own creation.
In other words, smart contracts can be a very primitive form of life, where they can act and they can “think,” although at an utterly basic level that perhaps can’t really be called thought except in as far as it moves by itself.
The general concept of Maker therefore can be extended into say your own budget, where the smart contract is coded so as to automatically take care of your usual financial habits.
That is, when your salary is received, instead of going into your wallet it can go into the smart contract which pays the rent, bills, sends x to savings or a crypto exchange, orders your weekly shopping, sends some to a discretionary spending eth wallet you control and then sends whatever is left to a manual wallet where now you decide what to do with whatever is left from your wages.
This can be turned into an easily readable template even for non coders whereby you change the parameters as you like and send it off to the network, binding your lack of control to the rules of code where capricious nature succumbs to the rules of thought.
Us mere mortals however might perhaps not need so much the luxury of these servant bots who kindly take care of our monthly rituals.
Yet the wallet in question can belong to a bot, not a human. The salary received can be that of a smart contract, not man. For without a private key, without a door, who is to say if it is inanimate matter or a mere mortal?