For those who have been keeping up with what many regard as the largest project in the DeFi ecosystem, today marks a historic day for MakerDAO, a permissionless lending system built on Ethereum. After an executive poll was passed this past Friday, Maker received community consensus to go live with Multi-Collateral Dai (MCD) this morning. To provide a quick list of why this is so important, the MCD upgrade:
- Brings an enhanced UX through Oasis
- Kicks off the Dai Savings Rate, a passive saving rate built directly within Maker
- Allows new forms of collateral to be used to mint Dai, the world’s first decentralized stablecoin
- Marks the successful execution of the Maker vision as outlined in the whitepaper over two years ago to date.
For users who are familiar with taking out a loan through a Collateralized Debt Position (CDP), you’ll be happy to know that the process for MCD is almost identical. The only major differences are terminology and navigation, meaning that Maker has replaced certain terms like CDPs with Vaults to aid in new users onboarding.
Similarly, we want to introduce you to Oasis, your one-stop-shop for interacting with Dai. Within Oasis, users have the ability to trade, borrow and save Dai all through an intuitive and visually appealing dashboard.
Introducing Oasis Trade, Borrow, and Save, the all-in-one #DeFi hub.
— Maker (@MakerDAO) November 18, 2019
Why is the Dai Savings Rate Exciting?
While many platforms have seen significant interest for their ability to grant lenders an annualized return by lending out their digital assets, virtually all of these solutions require either a) the transfer of ownership b) a minimum deposit or c) a fee for using the service. With the Dai Savings Rate, the user never loses custody of their asset(s), has no minimum deposit and charges no fees for using the service.
“The most amazing aspects of the DSR are that it has no counterparty credit risks and it can be implemented on the backend of any DeFi product that uses Dai,” says Rune Christensen, CEO of the Maker Foundation. “The inherent efficiency of the Maker Protocol and, by extension, the DeFi ecosystem, are what allow the DSR to provide great savings opportunities for people everywhere.”
With this in mind, Dai continues to portray a strong competitive advantage over other stablecoins like Tether (USDT) or US Dollar Coin (USDC) as foundational businesses like exchanges, funds, and trading desks can now earn a passive income on their capital float.
Why Is New Collateral Exciting?
With Single-Collateral Dai (SCD), pooled ether was the only form of collateral eligible to be posted to mint (or create) new Dai. Thanks to MCD, new Ethereum-based assets such as Basic Attention Token (BAT), 0x Protocol Token (ZRX) and Augur Reputation (REP) will also be used as collateral. Similarly, it’s expected that projects like the Tokenized Asset Portfolio will allow for real-world assets to also be tokenized and supported in future versions of MCD.
Dai’s currently debt ceiling of $120M makes it one of the smaller stablecoins on the market in terms of overall market cap. With the introduction of new collateral, it can be assumed that the supply of Dai will increase at a much faster rate in the coming year(s). As such, Maker ultimately starts to act as a decentralized bank in which anyone anywhere in the world can take out a stable loan (in the form of Dai) using an unlimited number of currencies.
What’s So Novel About the Maker Vision?
Seeing as Maker is inherently set up as a distributed autonomous organization (DAO), the governance structure has largely been community-oriented. With weekly calls and executive polls required for any major changes, the launch of MCD signals that DAO structures are in fact capable of delivering on long-term visions.
When the project was started over three years ago, the concept of DAOs was both nascent and sceptical due to the nature of the DAO hack. Since then, many users have been looking for signs that DAOs are capable of making progress. While MCD still has a ways to go before it reaches the mainstream, the development, governance and execution of the upgrade is an incredibly powerful signal for the DAO community at large.
The Road Ahead
Now that MCD has officially launched, we expect Maker governance to really start heating up in the coming year. Not only will the peg be that much more difficult to maintain (due to the nature of introducing new collateral that may be subject to more volatility) but community members will play an increasingly important role in ensuring the protocol continues to move in the “right” direction.
Up until now, the lack of governance decisions on collateral types made it much easier to focus on key system designs such as the Stability Fee. As we start to see polls for new collateral, wide-spread governance will be that much more important for ensuring that the “right” types of collateral are being introduced. Similar to what we saw with community voting polls on exchanges like Binance, there’s a chance that third parties may look to acquire MKR to influence voting on their behalf.
Similarly, the annualized return on the Dai Savings Rate is entirely community-based. While it will be difficult to determine a proper rate until time has passed, we want to take this time to emphasize that every vote counts. If you’re passionate about the future of Maker, it’s all that more important to ensure you’re putting your MKR to full use by voting on each new proposal.
In the meantime, we’re extremely excited to watch how Maker grows in the coming year. It’s been clear that legacy capital is watching the DeFi ecosystem very closely, and we personally think Dai could play a huge role in helping the Ethereum ecosystem find it’s first true killer app.
Until then, be sure to follow us on Twitter to stay up with all things DeFi!
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.