How Multi-Collateral Dai can impact DEX margin trading

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DevCon 5 is in full swing and MakerDAO has announced the release date to one of their most anticipated features. Starting November 18th, their decentralized stable coin, Dai will be known as Multi-Collateral Dai (MCD) which can be created with more than just Eth tokens. 

Holders of DAI will need to upgrade their Single-Collateral Dai (SAI) to MCD when it is released, otherwise they will be “subject to emergency shutdown.” Maker has listed the steps for doing so on their Github. 

Short recap of Dai

When Dai was released, many people used it as an alternative for taking out a mortgage, as the interest rates were much lower than taking out traditional banking loans. As time went on, the value of Dai was too often under the dollar peg. Maker associated the falling value of Dai with a need to cap supply and eventually increased the fee for creating DAI to upwards of 19%.  

More recently, Maker has been able to decrease the fee for creating Dai. This could be partly because a Coinbase listing making it more accessible purchase and hold, or because of its increased usage on decentralized exchanges. 

How it can affect the present 

Currently, the price of Dai is sitting above $1.  Maker could use some more people taking Dai loans out as the Eth value locked in Maker has dropped from $500 million to around $280 million. 

Dai pairs on decentralized exchange, DyDx are more popular than their USDC counterpart even though Dai borrowing interest rates are higher. DyDx lets users trade with up to 4x margin using the 0x and eth2dai protocols (liquidity pools). 

APR for borrowing Dai on DyDx is currently around 9%, but the exchange says interest is scalable depending on market utilizations. This means that as the amount of borrowed Dai gets closer to the Dai available to lend, interest rates will increase. 

If more Dai is created as more types of currencies are accepted as collateral, some of the Dai will likely end up on exchanges. The more unused Dai in the lending pool of DyDx, the more competitive margin fees will be in comparison to BitMex.

TLDR 

We’ll still have to wait for decentralized credit scores to bring crypto loans to the average consumer. Many people are under the impression that decentralized loans only suit the needs of speculators, but Multi-Collateral Dai can improve that niche field.

Locked value in decentralized finance never felt the capitulation that tokens did, but it has had a bit of a slump in the past months. Because of this, it’s a good time for innovation to help Maker lock up some more coins.