What’s hot in crypto this week?
Maker (MKR) is a governance token that underpins the first “stablecoin” on the cryptocurrency platform Ethereum, called DAI. Stablecoins such as DAI are a type of cryptocurrency that’s backed by reserve assets. Maker is on the protocol of MakerDAO, or the Maker Decentralized Autonomous Organization.
It used to be that to create this DAI stablecoin, users had to deposit cryptocurrency tokens ETH or BAT into a collateralized debt position, and received DAI in return. The system charges a “Stability Fee” to open up a collateralized debt position, which essentially works as an interest rate to control DAI supply and keep it at its $1 peg.
MakerDAO — the project — functions as a dual-token system, where the MKR token behaves as a governance token to vote on proposals within the ecosystem, most commonly in regard to the DAI Stability Fee, and the DAI stablecoin is a product of the system’s loan mechanisms. MKR tokens are also minted or burned in accordance with price fluctuations.
Until now, the MakerDAO let users deposit cryptocurrency-denominated collateral to take out loans in the U.S. dollar-pegged stablecoin DAI.
This week, holders of the MKR token agreed to further diversify the collateral it accepts for loans, to also include real-world assets.
Specifically, the community-approved supply chain invoices and musicians’ future royalty streams as security. These will be represented on the Ethereum blockchain by unique and immutable non-interchangeable tokens. Small businesses and artists can take the borrowed DAI, which usually trades one-to-one with the U.S. dollar, and convert it to cash.
How has MKR’s FCAS score changed?
MKR FCAS increased 25-points (2.86%) in the past two weeks, led by a 63-point (7.51%) climb in User Activity. Market Maturity also rose 46-points (6.17%), while Developer Behavior remained unchanged.
What’s Flipside’s take?
The spike in User Activity can be explained by the important push we’re seeing to diversify MakerDAO’s collateral, so as to improve liquidity and reduce risk. In the past two weeks the community voted on whether to add new stablecoins, for example, TUSD, and Paxos Gold tokens, or other cryptocurrencies such as ZRX, MANA, FTM, and even fiat currencies as collateral assets.
Adding tokenized real world assets to the mix is a way for users who do not own crypto to still benefit from DeFi, by borrowing money quickly and on their own terms. This is especially vital considering the current economic crisis, where freeing up working capital could be a lifesaver.
“These should be seen as the first two [RWAs] in the greatest portfolio of assets that’s ever been built,” said Rune Christensen, founder of the MakerDAO project. “It’s just the first step. Thousands and thousands of assets will exist alongside them.”
On The Flipside: In the event of default, lenders have to rely on the legal system to enforce their rights to the collateral, rather than an automated smart contract. Many worry that this is straying away from a trustless system. To that, Lucas Vogelsang, CEO of the crypto startup Centrifuge, argues: “Just because there is a legal contract in place, the asset originator cannot do whatever they want and just pull the plug.”
In other words, the risk of an abuse of power remains limited.
The Flipside Crypto Asset Score Tracker provides institutional and sophisticated retail investors the ability to track over 500 cryptocurrencies’ fundamentals. FCAS Tracker is currently free to a select group of new users as it continues to develop the product. Visit Flipside here to gain access to Flipside Analytics.