Stablecoins: A Promising Future in Crypto
Stablecoins are increasingly recognized as a significant aspect of the cryptocurrency landscape, showcasing some of the most lucrative opportunities available. In a report focusing on MKR and SKY, I previously hinted that the recommencement of buybacks would likely lead to superior performance against various crypto assets when considering risk. Following the buyback announcement on February 20, MKR experienced a remarkable 46% increase in value compared to Bitcoin and a 70% rise against Ethereum. Notably, MKR stands out as one of the few cryptocurrencies that has reported a year-to-date price growth of 24%. In this update, I will outline three key factors that support the continuation of this upward trend: the introduction of the SKY staking mechanism, the mandatory migration of SKY tokens, and the SPK token mining initiative.
Introducing the SKY Staking Mechanism
MKR/SKY operates by utilizing all protocol-generated revenue for token buybacks. Currently, the protocol is repurchasing approximately $15 million worth of tokens each month, which translates to around $500,000 daily, effectively representing about 1% of the circulating supply each month—a leading figure among crypto projects. On April 30, Rune proposed a new strategy to implement the SKY staking mechanism. As per this proposal, 50% of the revenue generated by the protocol will be allocated to SKY stakers, distributed in USDS. This means that out of the daily repurchase amount, approximately $250,000 will be reserved for buybacks, while another $250,000 will be rewarded to stakers. Should 33% of the SKY supply be staked, participants might anticipate a staking yield of around 7-8%.
Mandatory Migration of SKY Tokens
The update also revealed plans for a compulsory migration from MKR to SKY tokens. Given that MKR is one of the earlier ERC20 tokens launched back in 2017, many tokens have likely been lost permanently due to reasons like forgotten private keys or inactive wallets. Through an analysis of on-chain data, I identified a number of “dormant MKR tokens” that are expected to be removed from circulation. I have made calculations based on reasonable assumptions, such as the idea that if 23,349 MKR tokens have remained untouched for 4-5 years, around 90% of these are likely irretrievable. Consequently, I forecast that roughly 100,000 MKR will be eliminated during this migration, roughly equating to 11.4% of the current circulating supply. This estimate appears conservative, especially when referring to other instances of lost tokens, such as Aragon DAO, which experienced about 27% of its tokens remaining unclaimed during a similar migration process. Therefore, I predict that between 10-20% of MKR could be removed from circulation in the upcoming months or years, which is likely to bolster the token’s price. Additionally, this enforced migration might encourage more centralized exchanges to list SKY, providing further advantages.
Launch of SPK Token
The Spark project is innovatively merging a lending market with on-chain asset management, achieving impressive results with nearly $40 million in revenue during the first quarter of 2023, all with minimal incentives. They can borrow stablecoins for SKY at preferential rates while efficiently allocating capital on-chain. The SPK token will be made available through a “fair launch/mining” model, allowing users to mine it by staking USDS or SKY, with specific economic parameters outlined in relevant documents. In the initial two years following the token launch, 50% of the SPK incentives will be allocated. Assuming a fully diluted valuation of $500 million, $250 million will be distributed among stakers of SKY and USDS. This model not only provides a source of staking income for the native token but also fosters the growth of USDS, which will facilitate future buybacks. Furthermore, several subDAOs or “star” projects are set to launch soon, such as Solana Star and RWA Star, which will further reinforce the buyback strategy.
Stablecoin Legislation on the Horizon
The GENIUS ACT is anticipated to be signed into law by Trump around July or August. Although the legislation primarily focuses on centralized stablecoin issuers, it is expected to have a minimal impact on decentralized issuers. Nonetheless, the overarching narrative surrounding this policy could create a favorable market environment for MKR/SKY. Industry specialists are forecasting that this bill will likely receive approval in the summer months.
Conclusion
In summary, stablecoins are poised to play a crucial role in the future of cryptocurrency and represent some of the most promising investment opportunities in the current market.
