US-Backed Coin MakerDao’s DAI vs Terra’s UST Use Cases & Features: Crypto Projects Boost The Adoption of Decentralized Stablecoins

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makerdao stablecoin future

MakerDAO, in particular, seems to have taken a particular interest in exploring the benefits of stablecoins and has taken a number of significant steps to improve the adoption of its stablecoin, DAI. A critical mass of stablecoin users is required for a stablecoin to achieve widespread adoption. While a few major stablecoin projects, such as MakerDAO and Terra are on the path to widespread adoption, most stablecoin projects are still struggling to get their native currencies off the ground.

Projects Pushing For Stablecoin Adoption

Some of the factors that contribute to the success of some stablecoin projects include a commitment to user-friendly design, a clear vision for the future of the project, and a strong focus on community growth.

MakerDAO has either implemented or is contemplating new features to help improve the adoption of its stablecoin.

Those of you who are frequent readers of this letter are probably familiar with MakerDAO and Terra, the two leading decentralized stablecoin providers.

Despite being much larger than both of these projects, Tether (USDT) and USD Coin (USDC) fail the decentralization test.

A stablecoin called DAI is created by MakerDAO, while UST, a fast-growing stablecoin, is created by Terra. UST recently overtook Maker as the largest decentralized stablecoin by market cap, even though Terra made a late entry into the market (Maker debuted in 2014 and DAI arrived in 2017).

UST (purple) and DAI (orange) market capitalization over the past year. Source: CoinGecko

The market capitalization of USDT is $80.8 billion, USDC is $52.4 billion, Terra is $15.8 billion, and DAI is $9.3 billion.

Since November 2020, Defi activity has increased on Terra. Source: DeFi Llama

You can see that UST led in December. In the past, people might have thought it was just a flash-in-the-pan stablecoin attempt.

UST has, however, continued to rise since then.

Terra’s Token LUNA Fascinating Growth And Price Predictions

Aside from the stablecoin, Terra’s governance token, LUNA, is now ranked among the top 10 cryptocurrencies by market cap, ahead of Cardano, Solana, and Avalanche. LUNA’s price has increased from roughly $78 to $93.5 since UST overtook DAI on December 20.

It’s no surprise that both assets have been rising in tandem. LUNA is destroyed each time more UST is minted.

There have been tons of LUNA destroyed as the Terra-based DeFi ecosystem has expanded and there is an increasing demand for a native stablecoin.

MakerDAO’s growth has stunned many, but perhaps none more so than Terra’s. Terra has now taken action.

MakerDAO has either implemented or is currently considering new updates to help increase adoption of its stablecoin and also rethink the tokenomics of its native MKR token.

Almost certainly, this wave of changes is intended to restore DeFi’s original central bank to power.

Among the proposals under discussion is that of making MKR a sort of vote-locking token similar to Curve and Yearn’s “ve-” models. This means that you would need to stake your MKR token in order to participate in various governance proposals. StkMKR and voting rights would be exchanged in return.

MKR Token Rewards

However, staking MKR tokens would also reward users with additional MKR (similar to yield farming rewards).

Surplus auctions, a Maker event triggered whenever there is a surplus of DAI, would generate these rewards. According to this proposal, the excess DAI is sold for MKR, and a percentage of the proceeds from this auction would be allocated to holders of stkMKR.

Through this redesign, MakerDAO hopes to encourage users to 1) buy MKR so they can participate in MakerDAO governance, 2) stake MKR tokens, thus removing them from the market and creating a band of never-sellers, and 3) create juicy incentives such as an APR on stakes.

Another update was the addition of stETH-ETH liquidity provision (LP) tokens to MakerDAO as collateral.

Just to refresh your memory, Maker mints DAI using overcollateralized collateral.

Are you interested in DAI?

Then you’ll need to deposit more than 100% of any other cryptocurrency you choose, such as Ethereum, Wrapped Bitcoin, Uniswap, and so on.

This list gets a little longer with the addition of stETH-ETH LP tokens.

Additionally, it shows how a traditionally conservative (at least for DeFi) project is taking on a bit more risk than it has in the past.

Due to its reliance on two other cryptocurrency projects, this particular asset is riskier than usual. Let’s take a look at how it works.

To get stETH from Lido Finance, you must stake your Ethereum first. To receive the stETH-ETH LP token, you’ll deposit the stETH into Curve Finance’s stETH pool. LP tokens can now be deposited on MakerDAO and DAI stablecoins can be minted.

stETH-ETH LP pool on Maker.Source: Oasis (DAI minting tool for Maker)

Then you can use those stablecoins to purchase more cryptocurrencies, keep them in another lending protocol earning interest, or simply repeat the stETH to DAI circuit until you’re max leveraged.

Last, but not least, there is a massive risk involved. As ETH drops, lowering the value of that LP token below Maker’s 155% collateral ratio, you’ll be liquidated.

Perhaps the most controversial proposal has been the inclusion of more real-world assets (RWAs) as collateral for the Maker protocol.

hexonaut, a protocol engineer at Maker who contributed to the proposal, says it is time for the Maker protocol to boldly take action and seed DeFi’s next phase. We have been treated well by the bull market, but that time is passing. Next, we need to start integrating with the real world on a large scale.”

Likewise, hexonaut (along with two other people) proposed to open the collateral pool to assets such as real estate loans or debt financing, so you could mint DAI using non-crypto assets.

Several protocols have already been created to bridge these two worlds, including Centrifuge (which has already made more than 78 million in DAI using these kinds of assets).

Additionally, to make Maker less risky, hexonaut proposed removing the current burn mechanism in order to increase Maker’s surplus.

“We propose this first step to stop the burn and center on building a massive surplus buffer,” they write. “By redirecting all profits into the buffer we can risk-on for the protocol without causing existential threats like flop auctions.”

As was also briefly mentioned above, the surplus burn uses excess DAI in the market to buy MKR tokens and then burn (crypto speak for destroy) those tokens. The latest proposal is to eliminate this mechanism so that the protocol will be liquid enough to onboard more risk.

Black swan events like what happened to DAI briefly losing its dollar peg in March 2020 could be better cushioned with more funds floating around.

Certainly, that’s the plan. As well as overtaking Terra.

Via this site.


Chris Munch

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.