Just when you thought the world of cryptocurrency stablecoins couldn’t be more complicated, it is.
A so-called governance token called MKR, which is used to help run decentralized DAI stabilcoins, has risen nearly 40% in value since the fall of the algorithmic stabilcoin TerraUSD last week, which has shaken the cryptocurrency market. DAI is part of MakerDAO’s ecosystem, one of the first decentralized autonomous entities in crypto, which theoretically acts as a community of integrated interests without any central control.
The idea of decentralized decision-making due to the amount of dominance over TerraUSD, or UST, by Do Cowan, co-founder of Terraform Labs, is particularly interesting given the long theme of crypto. The UST was also billed as a decentralized currency, although it tried to use algorithms to balance supply to maintain a 1-to-1 peg with the dollar. This fails when the built-in arbitration process no longer works because the demand for Terra Luna tokens decreases. Perhaps more importantly, DAI seeks to integrate resources more.
“It simply came to our notice then. “The moment the pressure leveled, the UST exploded sharply, leaving Maker as the undisputed king of decentralized stabilization.”
Stablecoins can be a bridge between two worlds that weren’t designed with that in mind – cryptocurrency and traditional money. This makes them useful as a way to lock profits from crypto trading or as a safe haven if investors think recession is coming. They also make it easier to transfer funds to crypto exchanges and have become a key component of DeFi’s world.
DAI requires overcollateralization through Ethereum-based coins. For example, users have to deposit মূল্য 150 worth of ether or more to get a A 100 worth of DAI. If the price of ether goes down, they will have to add more collateral or face liquidation.
MKR directly benefits if DAI is good. The specific fee that MakerDAO collects goes towards buying MKR in the secondary market and burning it.
Created in 2017, DAI is the oldest decentralized stablecoin. It has survived the crypto winter of 2018 and the tragedy of the coveted lockdown of 2020.
“The market seems to value stability / restraint in Stablecoinland,” said Michael Busella, general partner at Blocktower Capital. “Perhaps a game of relative value, DAI is ‘performing well’ and has been tested for stress before, one of the few decentralized money dramas left.”
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