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.

 

 

Mosendo announces Gasless, an Eth free way of sending Dai

Mosendo, a DeFi focused money management project, released a new product called Gasless that helps avoid using Eth when transferring Dai. Gasless, is a service that capitalizes on new features in Multi-Collateral Dai (MCD) that uses a permit function in order to skip a step in the transferring process.

Apparently, Maker didn’t advertise much about the fact that MCD is able to execute meta-transactions without a third party. Mosendo jumped on this finding in order to build what is now called Gasless. Gasless interface

“It’s surprising that there is zero documentation about this online from the Maker team, except for the source code itself.” said Nour Haridy, blockchain architect at Mosendo. “They should be bragging about this,” He continued.

They define meta transactions as a way to delegate your transactions to someone else, so that they pay for your gas fees. There is still a gas fee for sending the Dai, which can be paid in Dai, but users won’t have to send Eth from another wallet in order to use the gasless wallet.

“What’s really cool about this is that I can create a new wallet, I can receive a client payment for say 200 day, then I don’t ever have to dox myself by sending Eth from another wallet. If you ever find yourself in a situation where you have Dai in a wallet but no Eth, this allows you to get around it,” Says Clayton Roche, Head of DeFi at Mosendo.

You will still need to connect a smart wallet in order to use Gasless, but it doesn’t share your smart wallet address. In total, fees seem to be higher using Gasless than metamask.

“I just now compared metamask fast setting and it’s .03, and Gasless is .16. I don’t know how much of that fee is just the gas, nor what gas settings its using,” Roche clarified

As someone who only holds Eth in order to pay for gas prices, this app could be very convenient. It’s hard to estimate how much gas you might need over a certain period of time, so instead of being left with Eth dust in a wallet, it might be more financially practical to pay in Dai.

Watch the full explanation here:

 

Here’s why DeFi is hitting all-time highs

April 2019 was the last time DeFi’s ‘value locked in Ethereum’ hit all-time highs. This month, the space has blown past the previous 2.3 million Eth record by an extra 300,000.

Still, ‘value locked in USD’ is about $20 million lower than the previous high in June 2019, when Ethereum’s USD value was almost double what it is today.

What’s been happening in DeFi?

Value locked in DeFi has been steadily increasing since 2017. Looking at the chart alone can spark interest because of how DeFi’s appeal seems to transcend the volatility we’re used to seeing in crypto assets. On DeFi Pulse, the value locked in Ethereum chart looks more like Apple stock than Bitcoin or Ethereum’s price charts.

That being said, it’s not too surprising that the DeFi space is continuously being utilized. Out of millions of use-cases crypto entrepreneurs come up with, DeFi projects produce tangible results. Right now, one can easily lock DAI into a lending protocol, receive 5% APR and pull it out whenever they want to.

On top of that, decentralized exchanges are getting more and more features, such as margin, stop losses and limit orders. Some DEXs are one stop shops for lending, borrowing and margin trading. Liquidity is still lacking which is bound to keep big players at a distance, but the space is clearly improving little by little.

Okay, but why is DeFi hitting all-time highs right now? 

MakerDAO’s DAI stablecoin is the token that makes DeFi go round. Instead of being backed by dollars, it uses algorithms and a system of incentives to keep the price pegged around $1.

Originally, DAI was only able to be backed by Ethereum, but on November 18th, Maker released an iteration that could be backed by any ERC-20 token.

The release was exciting and all, but what it really did was get Eth moving around in the Ethereum ecosystem. Maker is forcing all SAI holders (people who still use the Ethereum only DAI) to manually convert their holdings to the new version. With this, others created protocols to make the process easier.

Excitement over the most popular protocol making a new iteration of their product creates press for DeFi, encouraging new Eth to be locked, forces people to move Eth around, requires protocols interacting with DAI to introduce new features and increases potential for casual DeFi observers to see how the space has been changing and potentially test out new features.

There’s one exchange called Synthetix that has shown remarkable growth without huge releases. More recent growth in Synthetix seems to spike around the same time as the DAI release, but it doesn’t use DAI at all.

Eth locked in DeFi by the numbers

The largest Eth-locker in DeFi, SAI hit an all-time high of 100 million tokens outstanding and has dropped to 86 million since the new version of DAI has released. The new DAI is at 18 million tokens outstanding, 14 million of which were converted from the old version. This means that within a few weeks, 4 million DAI tokens were created.

According to DeFi pulse, when DAI was released on November 18th, 2.47 million Eth was locked in DeFi. Currently there are 2.62 million Eth locked. 4 million dai would only be equivalent to about 26,000 Eth, which only accounts for a minority of the growth.

Another protocol that has been rapidly locking Eth is InstaDApp, which since the release of DAI has locked 60,000 Eth. Their growth undoubtedly has to do with DAI because they recently released a “partial debt migration” system which DeFi pulse noted, was a hit.

The other 200,000 Eth mostly comes from growth on the Synthetix derivative platform. This platform has been growing slowly and steadily, but experienced a spike around the time DAI was released. On their platform, users can long or short any crypto, commodity, stocks and stake their Synthetix token for rewards.

Right now, Multi-Collateral Dai is like an iPhone without an App Store

The token that holds DeFi together, Dai, just went through a highly anticipated improvement. Last week it was only able to be created by giving Maker Ethereum and now the system is capable of collateralizing any ERC-20 token. Even though it’s exciting, in its current adolescent stage, it’s hard to be truly excited.

Maker is right though, Ethereum limits interest in Dai

There are a considerable amount of people who hold all Bitcoin and no Eth. That same amount of people are not able to, and are not planned to be able to collateralized their assets for Dai in the way Ethereum holders can.

If Maker wants to maintain the most adopted decentralized stablecoin, they will need ways to increase supply to match ideal demand. Before Multi-Collateral Dai, the supply was limited by the amount of Eth holders who were willing to collateralize their positions.

Now, they added compatibility for ERC-20 tokens, and are starting things off with Basic Attention Token. Still, BAT will only be able to make up about 3% of Dai’s total collateral. And this is where things get less exciting.

In reality, this MCD launch is a baby step. I won’t criticize taking things slowly, because messing up the stability of Dai would dissuade people from using it, but 3% of collateral being BAT is really just not that cool.

Like an iPhone without an App Store

Maker is giving us a revolutionary product with Multi-Collateral Dai, but it still has yet to be realized.

First of all, it lives in the Ethereum network which has its own issues. Until Proof of Stake is a thing, payments are slow. Paying with Dai is like streaming video over a 2g network, just not worth it. It’s not Maker’s fault, it’s just that the technology isn’t there yet.

Like how iPhone users had to jailbreak their device to download apps before the app store existed, Multi-Collateral Dai still is forcing potential lenders to other avenues. The extremely limited amount of assets able to be collateralized still push Bitcoin holders take out centralized loans.

Right now, sites like Celcius allow users to exchange enter a CDP with Bitcoin and receive USDC. This doesn’t make USDC the same as Dai, because it is not being created by the CDP, just lent. Yet, it still will result in people avoiding Dai because they might not be comfortable holding an Eth position.

If Ethereum’s price moves the wrong way, lenders have a chance of being liquidated, and the Bitcoin / Ethereum markets have been quite different since the 2017 bull run.

Multi-Collateral Dai could include centralized assets in the future

It is possible for a trusted custodian to tokenize real world assets like gold. It is also possible for Maker to accept those tokens as collateral. In an interview with DeFi Nation, (and possible elsewhere) Rune Christensen talked about how accepting real world assets could help Dai scale.

DeFi purists likely won’t like the idea of trusted custodians playing a role in their decentralized stablecoin, but the more types of collateral Dai can accept, the more it can expand.

Along with that, Christensen noted that Maker loves Ethereum and it can take DeFi a long way, but it didn’t seem like he felt the need to be tied to it forever. Maker is having all Sai holders manually transition to Dai, so they might not be afraid of asking all holders to manually transition to a non-Ethereum network if the opportunity arose.

Compromising to expand (and be profitable)

As long as Maker stays on a secure, decentralized network which people lock value in to create a non-custodial stablecoin, it will still be beating the competition in terms of decentralization.

Some users will definitely be turned away from accepting centralized collateral, but it can also bring a less crypto-enthusiast demographic of users into the DeFi space.

Maker’s plans are still very speculative but one thing is for sure. MakerDAO wants to expand. Just like a company trying to appease shareholders, Maker needs to increase transactions in order to increase the value of their MKR tokens. MKR hasn’t seen a lot of ups and downs, but no true bull runs thus far.

 

 

Whale controlling 50% of Multi-Collateral Dai vote

Currently, Multi-Collateral Dai has 29,000 of the 41,000 MKR needed to approve implementation. The top supporter is one whale who has contributed 50.64% of Multi-Collateral Dai’s total votes.

Multi-Collateral Dai voting

MakerDAO uses a continuous approval voting system, which means that in order for MCD to pass, it needs as many votes as the last proposal acquired. The last proposal was to keep all Dai parameters the same as they had been for the past week, which is arguably less important than a fork of the entire system.

This is not the first time a whale has controlled voting power. A month ago, one voter was worth 97% of a vote that decreased the stability fee by around 5%.

Maker has portrayed confidence in the implementation of Multi-Collateral Dai, using words like “when it releases” rather than “if it releases.”

The Ethereum core developers don’t allow holders to vote because they believe that people most active in the community should determine the future of the network. MKR is difficult to get, at least in the U.S., so the learning curve to acquire it acts as a way to filter casual users out of the voting process for Dai.

Currently, Dai is only backed by Ethereum, but once Multi-Collateral Dai is implemented, Maker will be able to back it with coins such as BAT, REP and 0x. Christensen has even talked about collateralizing Dai with real world assets, but it doesn’t seem like they plan to do that anytime soon.

If the vote is passed, all holders of Dai and users in collateralized debt positions with Maker will have to manually convert their (now-called) Sai to (MCD) Dai. You can find out how to do that here.