What does a $27.5 million MKR sale mean for Maker governance?

This week, Dragonfly Capital and Paradigm purchased $27.5 million worth of Maker tokens as an investment and entry into the governance of Dai. Maker tokens are mostly used for collecting fees through interest payments and Dai liquidation penalties, and being able to vote for changes in the ecosystem.

Maker has already had issues with a single voter being able to determine the outcome of things like interest rates and the release of improvements, but how much power exactly will this $27.5 million give the new whales?

To get a good understanding of how this new investment can effect governance, we need to understand how Maker’s votes are tallied and how much of the total supply $27.5 million buys.

The total supply of MKR is 1 million and each token is worth around $480, giving the coin a total market cap of $480 million. Owning $27.5 million worth in MKR would be owning 5.7% of the total supply. This was apparently a joint purchase, therefor it is unclear whether the purchase will be split between the investment firms or if they will be on the same page when it comes to voting.

5.7% of the supply is not going to determine the vote in a vacuum, but what really matters is the voter turnout. Unfortunately, I don’t have historical data on Maker governance, but on their voting dashboard, I can see the past two votes. The previous vote to adjust debt ceilings, Dai savings rate and the interest rate had  119,000 MKR in support with a top voter contributing 55% of the voting power.

119,000 MKR * 0.55 = 65,450 MKR (one voter’s power)   /    65,450 * 480 = $31,416,000 (the same voter’s MKR value)

As you can see, $31 million is pretty close to what Dragonfly Capital and Paradigm purchased, and they would easily be able to take a major spot in governance if others didn’t show up.

Still, votes aren’t executed by the majority in Maker – the number of MKR in support of the new vote has to surpass the number of MKR in the previous vote in order to be executed. Where voting power matters more is when there is a spectrum from either no change to a (x) amount of change.

In the end, these new investors will be whales capable of subjecting their will upon Dai holders, but it’s not as much their fault as it is voter participation. According to Etherscan, there are 16,593 MKR addresses and only 8 hold over 1% of the total supply, 2 of which are Maker’s own contracts which I don’t believe vote. The remaining 6 whales hold about 23% of the total supply.