Nearly 1% of All ETH Now Locked in DAI, Maker Become the Most Valuable Ethereum Token


Maker has risen another 20% today on increased volumes of $3 million, more than doubling in price since September 12th from about $300 to now $750.

In the past few days especially, it has seen an acceleration in price, up by about $200 since this Friday.

That has given Maker a market cap of above half a billion dollars, making it the most valuable ethereum token after overtaking OmiseGo today, a token that has long dominated the top position for eth.

Maker overtakes OmiseGo, October 2018.

The success of Maker is dependent on the success of DAI, an algorithmic stablecoin that effectively turns collateralized eth into pegged dollars.

Now nearly a year since Dai launched, that peg has kept even through some of the most volatile and testing times, like September 12th when ethereum reached a low of $167.

That resilience has seemingly increased confidence in Dai which has now reached a market cap of just under $60 million.

Some 800,000 eth, currently valued at $184 million, has been locked in Dai to make possible its market cap of $60 million as can be seen in the featured image.

That means there are $3 worth of eth locked for every $1 in dai. That’s to give the peg some buffer, especially in light of the eth’s highly volatile price.

Some argue this locked eth has a deflationary pressure on price. For example, a blockchain consulting company, Deepit, says:

“During these 11 days, which were relatively quiet in terms of ether prices, 2,874.94 ether were entered per day and locked in the liquidity pools as collateral for the DAIs issued, for a total of 31,624.41 ether.”

That means 14% of the daily mining reward of about 20,000 eth has been counteracted by the circa 3,000 eth locked daily.

Top dai collaterals, October 2018.

Here one can see some of the biggest dai accounts. Someone, for example, has locked about $18 million worth of eth, and has drawn $6 million in dai.

Price would have to half for this individual or entity to get called. At that point, and in a very simplified illustration, the locked eth would be worth about $9 million, with some of it sold off to cover the dai.

Of course the owner of the account can add more eth if they don’t want to be called, but if they happy to sell at that price they can just keep the $6 million.

Making Dai a very complex smart contract which we’re still trying to comprehend in full. That’s because there is the “simple” element of turning eth into stable dai dollars, with the dai then able to act as trustless Tether on exchanges for traders to enter fiat or for arbitrage and so on.

Then there’s the element of decentralized margins whereby you turn the eth into dai dollars, then with these dais you buy more eth, so increasing your holdings while increasing your risk because if price goes down you get called more quickly.

Then there’s the complex element of a collateralized loan. If you are very poor and desperate, for example, yet you have a nice gold necklace, you can go to one of the local pawnshops and give them the necklace for security in return for whatever amount of dollars they willing to give you. Then you have to pay them back the dollars at a very steep interest rate to receive your necklace.

Another example is taking out a loan as a homeowner. Especially if you’ve paid back the mortgage, banks would be very willing to give you a loan because if you can’t or don’t pay it back they can just sell your house.

Neither gold nor houses are as volatile as eth, but the idea is similar. Instead of using the dai drawn from the locked eth to buy more eth, you can use it to fund your business or buy a car or perhaps even pay off a current loan. That’s what District0x’s team member PJ did, stating:

“Being able to generate an instant loan from a decentralized bank is the actual manifestation of what makes the crypto ecosystem so promising and exciting.

The use of CDP’s in conjunction with DAI is a game changer for the space, and for those who chose to take advantage.”

This is a loan based on the current digital assets you already have, rather than an advance of money based on earned income say like a credit card.

This sort of loan, moreover, isn’t for everyone. If you want to keep your eth safe, for example, and just hold, then you might not want to risk them being liquidated/sold based on what might be just temporary price movements.

On the other hand, if you’ve decided to sell your eth because perhaps you need whatever, rather than plainly doing so you can lock it in dai which you can then fairly easily turn into actual fiat cash by say buying eth with the dai, selling that eth on Coinbase or wherever for fiat dollars, and then withdrawing them to your bank account.

Obviously there’s the more complex element here that locking your eth into dai doesn’t lock the eth at the current price. You’d probably want to lock more eth than withdrawn dai dollars worth of eth as otherwise the activity is no different than straight selling.

That means if price moves against you, then your eth may be sold at a lower price than current price. So there’s a balancing aspect of just how much risk you want to take, whether you’re fine with the eth potentially sold at a lower price than current price, and whether that is offset by price potentially increasing, something which you wouldn’t be able to take advantage of if straight sold.

For those with means, they can lock say 5 times the amount of eth, and withdraw just 1eth worth of dai dollars. They can then use these dollars however they want while being fairly safe in knowing that while obviously there is still some risk, it is a very small risk.

That could potentially have taxable benefits as selling your eth is a taxable event, while drawing dai isn’t as far as we’re aware.

Making this aspect a use case, at least for some, in addition to margin trading and the pegged dollar value. Use cases which for Maker holders translates into “dividends” as the “profits” from the circa 0.5% interest rate that dai currently charges are used to burn MKR tokens, thus lowering supply.

In addition, as dai is digitally native, it benefits from easy integration with other dapps as Augur has announced for example.

Making it all one of the biggest success story for ethereum so far and perhaps for the entire blockchain space as the concept of smart contracts is finally proved in as far as nearly one million eth are locked in the dai smart contract and no one has yet been able to take them.

As long as that remains the case, and there are fail safe mechanisms but they haven’t been tested, then PJ is probably right that this is a game changer.



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Adrian Ordnez

Propping up the price of the coin in a desperately way by reducing the number of coins ?
This is a sign that a coin or token has no use in real life and that eventually it will die.