As of April 21, 35,913 units of DAI, a stablecoin that maintains its price parity with the US dollar, are backed by real-world assets, more specifically, with units from the real estate market.
The data can be seen on the DaiStats website, and was also confirmed and detailed by Mariano Di Pietrantonio, head of marketing at the MakerDAO organization, which develops the token.
To achieve this collateralization, DAI leverages the Centrifugue service, a platform that, through smart contracts, provides real-world asset-backed (AMR) loans. Among these assets, according to the information provided on its website, are transmission invoices, mortgages and royalties. Also involved in this process is New Silver, an American real estate loan company.
35,913.22 DAIs are backed by real estate market units. Source: Daistats.com
Initially, the project finances home renovation loans in the United Statesas reported by Sébastien Derivaux, a member of the MakerDAO community, in statements to the press. He describes this implementation as “decentralized finance (DeFi) taking over traditional finance” and mentions that “value investors” from traditional finance are coming to platforms like MakerDAO.
Di Pietrantonio, through a thread on Twitter, described this milestone as the beginning of “a new era.” He mentioned that real estate prices “don’t move that much,” so liquidations of these assets as collateral should not be frequent. “How much does a house or apartment go down per year?” He asked rhetorically.
The novelty seems to have been interpreted as a signal to buy the Maker governance token (MKR). This cryptoactive went from USD 3,400 to USD 4,900 a few hours after this became known. It subsequently fell sharply, along with the entire cryptocurrency market, and as of this writing, each MKR is trading at $ 4,115.
Other assets that could support DAI
In addition to AMRs, the stablecoin continues to add collateral in crypto assets. On the MakerDAO platform, voting is open on the incorporation of various tokens, some of them, little known. Moss Carbon Credit (MCO2), 1inch (1INCH); Badger Sett Badger (BADGER) and Rocked Pool Stacked ETH (rETH), could begin to collateralize DAI.
They are also subject to voting the addition of some LP tokens, that is, those that are delivered to liquidity providers as proof of their participation in decentralized exchanges. Among them are Sushiswap’s LP DAI-USDC tokens, and Uniswap DAI-PAX and GUSD-DAI’s LP tokens. So, in a way, DAI would be being supported by other DAI.
Initially, DAI was backed by collateral only in ether (ETH), Ethereum’s native cryptocurrency. But, since the end of 2019, the stablecoin has been multicolateralized, as reported by CriptoNoticias at the time.
Among the tokens that currently help keep the DAI price stable is the representation of bitcoin (BTC) on Ethereum, wrapped bitcoin (wBTC). Also there are centralized stablecoins as collateral of DAI: Paxos Standard (PAX), USD Coin (USDC) and USD Tether (USDT), which has, at times, opened the debate as to whether DAI is really decentralized, as presented.
These tokens can be put as DAI backup by any user, within MakerDAO and, in return, you will receive a loan in that stablecoin. When it is returned (with an interest or “stability fee”), the collateral returns to its owner and the DAIs are “burned.”
What happens if DAI collateral drops in price?
A frequent fear, due to the volatility of crypto assets that collateralize DAI is what would happen if there was a steep drop in its price. This fear is particularly heightened with small-cap assets, such as some that could be introduced after the aforementioned vote. Economist Santiago Di Paolo explains:
Basically what the Vault does in the face of a sharp drop in the price of collateral is to sell the guarantee it has deposited to recover what you issued. In addition, you get what is a stability fee and a “liquidation penalty” (penalty) of 13% of the debt.
Santiago Di Paolo, economist.
By “Vault,” Di Paolo refers to the “vault” in which collateral is locked. This is a smart contract that can destroy DAIs or sell collateral, as needed, to balance the system.
In summary, in the event of a fall in the price of some collateral, the individual who placed those tokens as collateral to receive the loan would be harmed, but the price stability of the stablecoin would not be affected.