Maker (MKR) is a utility token, governance token, and a recapitalization resource for the Maker platform, which operates as a Decentralized Autonomous Organization (DAO). Using Ethereum (ETH) as collateral, the MKR platform has been predominantly used to create Dai and Sai, which are both stablecoins with a soft peg to the U.S. Dollar. The MKR market cap currently stands at US$532 million with US$756,000 traded in the past 24 hours. The total USD value held by the MKR contract is US$451 million, or 2.4 million ETH.
Rune Christensen, CEO of MKR, first began work on the project in 2015, with Dai launching in December 2017. According to Christensen, the project raised funds by selling the MKR. “MKR was sold off over time at a steady pace,” the CEO said, “initially through our forum and in private deals, and later through sell orders on openledger and now MKR market.” Notable MKR investors include Polychain Capital, Andreessen Horowitz, FBG Capital, and Wyre Capital which also provides a compliant fiat on/off ramp for Dai.
Initially, ETH was the only collateral accepted for backing Dai. In November 2019, MKR introduced a multi-collateral asset. The original single-collateral asset, backed by ETH, was renamed Sai, while the new multi-collateral asset assumed the previous name, Dai. These changes were made to reduce confusion during a transition from the single to multi collateral asset, and both the Single Collateral and Multi-Collateral Maker systems will run in parallel.
Currently, there are nearly 90 million new Dai in circulation. The introduction of the multi-collateral Dai also included a Dai Savings Rate, currently 6%, paid for through the collection of stability fees, a feature that allows the MakerDAO to compete with other DeFi projects yielding an interest rate.
The Maker DAO, which currently holds 2.23% of all ETH in circulation, uses a smart contract that backs and stabilizes the value of Dai through a dynamic system of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and incentivized external actors. These external actors include keepers, price oracles, and emergency oracles. These oracles were updated and retooled earlier this month in an effort to increase decentralization and introduce an incentive model.
In order to participate in the system, a user must first connect an ETH wallet, such as MetaMask, Ledger, Trezor, or a Coinbase Wallet, to the MKR platform. ETH and/or BAT can then be sent to MKR to create a CDP. Multi-collateral Dai is available through oasis.app.
Because ETH is not ERC-20 compliant, the ETH must be sent to escrow and “wrapped,” creating an ERC-20 compliant crypto-asset known as Wrapped Ethereum (WETH). A second crypto asset, Pooled Ethereum (PETH), is automatically inflated to pay off debt, or burned to pay for fees when necessary.
After PETH is created, the user retrieves Dai, equivalent to the debt, from the CDP, which locks access to the collateral. A user can retrieve the collateral and pay down the debt plus a continuously accruing stability fee. When the debt and stability fee are paid, the user can retrieve the collateral. A further explanation of the process can be found here.
CDP risk parameters include a debt ceiling, liquidation ratio, stability fee, and penalty ratio. Dai started with a debt ceiling of 50 million Dai, which was raised to 100 million in July 2018, after the first debt ceiling was reached. The variable liquidation ratio reflects how volatile MKR voters expect the collateral price to be. The stability fee is an annual percentage yield which can only be paid in MKR and is burned, decreasing the MKR supply. The penalty ratio determines the maximum amount of Dai raised from a liquidation and is used to cover the inefficiency of the liquidation mechanism.
Most of the larger CDPs, with greater than one million Dai in debt (chart below), are currently under an ETH price of US$120. These CDPs can also increase or decrease collateral at any time to increase or decrease the liquidation price. All of the largest CDPs currently have a liquidation price below US$120. The largest CDP, 3088, currently holds 8.28 million in debt at a collateralization ratio of 381% and a liquidation price of US$69.42. This data does not include multi-collateral Dai CDPs as of yet
On the network, Sai monthly active addresses (MAAs) have declined since November, in favor of mcDai (line, chart below). According to the MakerDaiBot, there are 3,218 active addresses between Sai and Dai. The strong rising trend of active users and exchange volume suggests incremental on-ramping and trust in the Maker ecosystem. Since December 2018, the average Sai transaction value (fill, chart below) declined significantly, suggesting these transfers may be dapp related.
A comparison between stablecoins shows the Ethereum (ETH) based version of Tether (USDT), which was released in January 2018, currently leading by most metrics. Adoption was slow initially but increased rapidly as exchanges introduced the asset. USDT-ERC20 quickly became the dominant stablecoin medium of exchange, which means continued and increasing strain on the ETH blockchain. Tether was originally launched on the Omni (OMNI) chain, and USDT-OMNI circulating supply and transfers will likely continue to shrink as USDT transfers on ETH are both cheaper and quicker than those on OMNI. Sai metrics could not be obtained at this time.
USDT is a non-mineable, Fiat collateral-backed asset (dark green and light green, chart below). The asset has firmly maintained it’s stablecoin dominance since competition ramped up in 2018, with more than US$4.3 billion in circulation currently between all blockchains. Dai (red, chart below) has significantly gained in popularity since its inception, but has taken a back seat to other stablecoins in terms of total circulating supply, such as USD-Coin (USDC) (blue, chart below), TUSD (neon green, chart below), and PAX (pink, chart below). The GUSD (yellow, chart below) circulating supply has fallen by 90% since late 2018.
Turning to developer activity, the MakerDao project has 174 repos on Github, with the Dai repo being one of the most active over the past year (top, chart below). The multi-collateral CDP portal repo has also been active over the past year (bottom, chart below).
Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
Source: Github - dai Source: Github - mcd-cdp-portal
In the markets, MKR (top table below) exchange-traded volume has been dominated by ETH and BTC pairs over the past 24 hours, while Dai (bottom table below) exchange-traded volume has been dominated by USDC and BTC pairs. Most of the MKR trading volume occurs on OKEx and Bitfinex, while Dai is the base currency of choice for most decentralized exchanges. Coinbase currently has tradable MKR pairs for the UK, EU, Canada, Singapore and Australia markets, but they’re not available to customers in the US. Coinbase Pro also has an ETH/DAI pair on the platform. Huobi also added support for MKR in late August 2019. Collectively, these MKR trading restrictions are likely related to the status of MKR as a security.
In 2019, several trading platforms, custodians, and trading firms announced a new Crypto Ratings Council (CRC) which provides a framework for the likelihood an asset does or does not represent a security. The CRC includes; Anchorage, Bittrex, Circle, Coinbase, Cumberland, Genesis, Grayscale, and Kraken. Of the assets currently rated by the Council, MKR topped the list as most likely to be a security. Binance, Bitflyer, Kraken, and Poloniex do not currently have MKR pairs.
MKR has limited chart history due to both a lack of exchange data and trading interest. New exchange listings and consistent daily volume across multiple exchanges will be one sign of increased speculative interest. All market pairs in the following analysis will be assessed using the weekly and monthly exponential moving averages (EMAs), volume, and the Relative Strength Index (RSI).
On the daily MKR/USD pair, the spot price has ranged between US$400-US$800, while volume remained muted, since July 2019. In October, prices briefly crashed to US$41 on low volume. The 7-day EMA and 30-day EMA had a bullish cross last week, suggesting further upside momentum. A move beyond US$1,500 would be a new period of price discovery. There are no volume or RSI divergences at this time.
On the daily MKR/BTC pair, the 7-day EMA and 30-day EMA have been bearishly crossed since December, after brief periods of bullish price action throughout 2019. Overhead volume resistance sits at 0.07666 BTC with significant support at 0.05798 BTC. Other significant volume-based resistance stands at 0.1 BTC, with any further upside likely finding resistance at 0.13 BTC. The record high for the pair currently sits just under 0.2 BTC. There are no volume or RSI divergences at this time.
Lastly, on the daily MKR/ETH pair, price had a small uptrend throughout 2019 with one MKR token currently worth 3.24x one ETH token, largely due to the differences in circulating supply of MKR and ETH tokens. The 7-day EMA and 30-day EMA are currently bearishly crossed, but are unlikely to be meaningful until price breaks the current price range. Prices above 4.00 ETH should see bullish momentum and prices below 2.00 ETH should see bearish momentum. Most of the historic volume for the pair sits between 3 ETH - 4 ETH, with an all-time high just under 5.50 ETH per MKR token.
Maker, Dai, and Sai compose a complex stable coin system which brings transparency, auditability, stability mechanisms, fallback procedures, and scalability to the stable coin universe. Despite several sharp drops in ETH spot prices throughout late 2018 and 2019, Dai has remained relatively stable throughout the tumultuous volatility.
Late last year, MKR added a Dai Savings Rate and multi-collateral Dai, which quickly became more popular than single-collateral Dai. However, full on-chain data for the newest form of Dai is not widely available. The goal of multi-collateral Dai is to bring increased stability to the ecosystem.
Technical analysis for the MKR token is limited due to the nascent exchange listings or complete lack thereof. Exchanges may feel hesitant to list MKR pairs because of the potential unregistered security’s offering implications. Coinbase’s MKR pairs exclude US customers and the Crypto Ratings Council evaluation suggests this is an ongoing concern. Throughout 2019, MKR has made modest gains in USD, BTC, and ETH markets, but all pairs remain largely range-bound based on historic price action. The Dai Savings Rate, Multi-collateral Dai, and further voting proposals may lead to increased use and velocity of the MKR token, which may then lead to bullish price action.