The MakerDao Foundation has been doing a great job to ensure the stability of DAI by hedging it against ETH with smart contracts. This way, if Ethereum suffers from any devaluation problems in the future, users will not feel these effects as much because their holdings are secured and supported by other cryptocurrencies.
Furthermore, some people have argued that this could be a good thing for Ethereum too because it would make ether holders start diversifying their investments more which is often seen as favorable situation when dealing with financial market risks or just risks in general.
MakerDAO continues to be the most popular Ethereum-based decentralized financial project, according to data site DeFiPulse. The project holds 54% of the value of the ecosystem in contracts. The MakerDAO token, MKR (Made in the USA), has performed so well that Andreessen Horowitz (a16z), one of the world’s most prestigious venture capital firms, bought a significant portion of its tokens in 2018.
DAI, The Ethereum Stablecoin, Is Already A Gamechanger
An Ethereum investor recently stated in a new analysis that MakerDAO’s stablecoin, DAI, poses “the largest existential danger to DeFi.” Moreover, Maker is not the darling of the DeFi space.
Ethereum DeFi is gravely threatened by the development of DAI. Metacartel Ventures partner Adam Cochran has written an extensive Twitter thread explaining why DAI poses a threat to Ethereum DeFi.
My favorite coin when it first launched was MKR as it was a project in which ETH (the asset that chain participants believed in) would be used as a stablecoin.
The State of Ethereum’s Decentralized Finance Ecosystem
He stated that all DeFi protocols – whether Fulcrum, Fulcrum, SET, Uniswap, and Aave – are centered around DAI because it is the first-mover. It is the “financial home of cards,” he continued.
DeFi’s DAI is a critical part of its entire system. If you like to use the “money Lego” analogy, then DAI is the foundation of the whole system. It is vulnerable to multiple types of risks.
It was this point he emphasized by mentioning the dForce Attack, where a glitch in a token supported on the platform resulted in dForce’s Lendf.me platform having its cryptocurrency stolen.The second point Cochran made was that MakerDAO does not represent a decentralized protocol.
MakerDAO team and Maker company, as well as other large holders and investment groups, own MKR, which he described as posing “an invisible hand” risk to DAI.
However, he did mention some internal power struggles within the Maker company that could end up posing a long-term threat to the protocol, although he did not accuse holders of doing so.
Why MakerDAO’s DAI is the next bitcoin
His last point is that DAI is at risk due to the multi-collateral DAI setup. This means that the stablecoin does not only rely on Ether, but also on other tokens such as BAT and USDC.
Despite being well-capitalized, he explained that MakerDAO is also considering adding other tokens like DigixDAO or Golem, which have “huge volatility” and might fail, thus creating a risk for the Maker community.
But things are changing. Synthetix USD (sUSD) is an example of a DAI-like system. Even though it is not fully decentralized, USD Coin might become the core of the DeFi ecosystem.
Currently, DAI is the first-movers advantage. This is challenging to overcome. Developers as well as users would have to work together to change the standard.
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Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
