Decentralized stablecoins could dominate crypto: MakerDAO founder

MakerDAO’s Rune Christensen says appropriate regulation will see stablecoins become mainstream, but the real opportunity is in decentralized stablecoins.

Decentralized stablecoins may eventually dominate the stablecoin market, so long as crypto “ends up living up to its potential,” says Rune Christensen, the co-founder of DeFi pioneer MakerDAO.

Speaking to Cointelegraph’s Andrew Fenton at Token 2049 in Singapore, Christensen aired his thoughts on the future of decentralized stablecoins such as Dai (DAI) and their role in the wider crypto economy.

They discussed a presentation by Castle Island Ventures partner Nic Carter at the TOKEN2049 conference in Singapore in which he said that interest-bearing stablecoins could become 30% of the market within two years.

Christensen agreed but said it would probably depend on the macro situation, adding “if high inflation high rates continue, then probably,” stablecoin dominance will increase.

*MakerDAO presentation at Token2049. Source: Cointelegraph*

When asked whether a decentralized stablecoin could compete with its centralized cousins, he replied:

“Easily I mean, I think if the space ends up living up to its potential, then decentralized stablecoins will be the entire market like centralized stablecoins would be the edges that connect us to like the legacy system.”

He added that if crypto “delivers” and becomes regulated, centralized stablecoins will become more mainstream. However, the real potential is in decentralized stablecoins, he suggested:

“I think the real killer advantage of decentralized stablecoins, run by actual data like Maker, is this ability to gamify your savings.”

In mid-2022, Christiansen proposed MakerDAO’s “Endgame Plan”. The plan proposes making DAI a free-floating asset, initially collateralized by real-world assets (RWA).

There will be a three-year period when DAI remains pegged to the dollar. During this period, the protocol will double down on RWA to accumulate as much Ether (ETH) as possible which increases the ratio of decentralized collateral.

*MakerDAO Endgame. Source:* *forum.makerdao.com*

Rune believes that Maker has built a very solid and stable foundation but it has been overtaken by scammy and illegitimate projects.

He wants to try and gamify to make the protocol fun and more appealing to younger users. “It's what people want,” he said before adding, “Things are designed like a game and that's the kind of interface they will use.”

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3 reasons why Maker (MKR) fundamentals hint at further price upside

Coin Telegraph

MKR looks primed to continue the rally given its recent buyback mechanism and two other key metrics that impact Maker’s price.

Maker has gained 53.5% over the past month, and the cryptocurrency witnessed a remarkable 28.1% surge between July 15 and July 22, achieving its highest daily close in nearly a year. While the gains are impressive, the real question is: Can the cryptocurrency sustain its current trajectory, or were short-term factors behind the price pump?

*Average Maker (MKR) price at Coinbase, Binance and Bybit. Source: TradingView*

MakerDAO, the decentralized autonomous organization (DAO) responsible for the Dai (DAI) stablecoin and the governance token Maker (MKR), unveiled a five-phase roadmap in mid-May. Dubbed “Endgame," the upgrade plan includes a new blockchain, a rebrand and the introduction of two tokens featuring updated functionalities.

Rune Christensen, co-founder of MarkerDAO, revealed that the primary component of “Endgame” entails developing incentive programs for interactions and governance participation based on a new chain bridged to the Ethereum network. Essentially, users will have the capacity to initiate hard forks in response to power attacks or abuse.

Ascribing the recent rally solely to these proposed changes seems simplistic, given that Maker’s price remained stable for 30 days after the announcement. Consequently, investors seeking to understand MKR’s movement must delve deeper to identify the precise triggers behind the price surge.

Venture capital funds unload MKR

According to crypto markets and decentralized finance analyst Nay, Paradigm Capital likely divested a significant portion of its MKR investments in March. Furthermore, A16z, another major venture capital firm that previously invested in Maker, has been reducing its position over recent weeks.

2/ The last two US-based VCs have capitulated.

Paradigm unloaded their bags 4 months ago, and a16z is in the process of liquidating right now. Interestingly, they're even using the same desk to execute. Total disbelief.

Polychain and Dragonfly offloaded all their $MKR years ago pic.twitter.com/DdsHs6gxzd
— Nay (@nay_gmy) July 15, 2023

While determining whether their sell pressure is abating proves challenging, one of the most significant risks for Maker has always been secondary token sales to venture capitalists from April 2019, at an average price below $250, amounting to 170,000 MKR.

According to Nay, Polychain and Dragonfly had also previously divested their positions, lending credibility to the rally based on the anticipation of other venture capitalists following suit.

Simultaneously, Christensen reinforced his commitment to the project’s long-term performance by reducing positions in Lido DAO (LIDO) and increasing the stake in MKR, as per his public Ethereum address.

Buyback mechanism reduces MKR supply

Collateralized debt positions (CDPs) enable borrowing DAI from MakerDAO using crypto assets as collateral. The smart contract then issues DAI, allowing borrowers to use it freely.

The previous smart burn mechanism involved burning DAI when a CDP closed. However, this posed a challenge if numerous CDPs closed simultaneously, leading to a DAI shortage.

Conversely, the new smart burn mechanism involves purchasing MKR from the market and burning it, independent of CDP closures. This allows MakerDAO to respond to market changes effectively and results in a reduced MKR supply, positively impacting its price.

Real-world assets boost protocol revenue

MakerDAO has impressively increased its earnings by 343% in three months by reducing reliance on the USD Coin (USDC) stablecoin and incorporating yield-generating real-world assets, according to MakerBurn data. This shift involved reducing the stablecoin ratio from 62.4% to 20.2% over three months.

*MakerDAO annual profit estimate in dollars. Source: MakerBurn*

Unlike other stablecoins, DAI passes yield to its holders through the DAI savings rate (DSR), a variable interest rate users can earn by depositing DAI into the DSR contract.

While the increase in the DSR has yet to reverse the trend for the DAI supply, mainly due to its 3.5% yield being lower than traditional fixed-income investments offering 5%, the protocol’s higher savings rate bolsters the odds of sustaining its 4.5 billion DAI supply.

A pivot that just might work

Maker appears well-positioned to sustain its rally due to the implementation of a buyback mechanism, the notable 343% increase in revenue and the reduced risk after venture capital exit strategies. Additionally, the co-founder’s reinforcement of commitment by adjusting his holdings in favor of MKR adds confidence to its future prospects.

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Endgame