What do you think of MakerDAO’s new brand upgrade?

Author: HAOTIAN

How do you evaluate MakerDAO's new brand upgrade? @SkyEcosystem When you see the full screen of RIP for DAI, you know that this matter is not simple:

1) From the perspective of the founder of censorship-resistant decentralized stablecoins, upgrading to UDDS with freezing function has lost the "innovation" core;

2) From the perspective of complying with the DeFi compliance trend and grabbing market share with USDC, the new upgrade may just be a new starting point for MakerDAO. Let's briefly talk about my views:

1) DAI is a product of a specific historical background. When the market lacks trust in stablecoins such as USDT and urgently needs a token that can maintain value stability, MakerDAO innovatively proposed a CDP model for mortgaging ETH to cast DAI.

In order to keep DAI 1:1 pegged to the US dollar, users need to over-collateralize to fight market fluctuations. When the price of the collateral falls beyond a certain threshold, liquidation will be triggered. When the collateral rises, more DAI will be supplied. The ultimate goal is to make the DAI price close to $1.

There are two limitations in doing this:

1. Users need to over-collateralize ETH and other crypto assets to obtain DAI. For example, with a collateral rate of 150%, you need to pledge $150 of ETH to mint 100 DAI. This will lock up some liquidity, increase the user's capital cost, and is not conducive to the large-scale expansion of DAI as a stable currency (compared with USDT, how many people have used DAI?);

2. DAI relies on market supply and demand to stabilize prices. In a bull market, users prefer to hold ETH and therefore repay DAI in large quantities, resulting in insufficient supply of DAI in the market. In a bear market, on the contrary, users compete to pledge ETH to obtain DAI and expand the supply of DAI. This will put great pressure on MakerDAO to regulate the system;

2) Looking back at the multiple key upgrade nodes of MakerDAO, they are essentially aimed at solving these two contradictory problems, but they are not limited to this problem.

For example, the introduction of multiple assets as collateral is to alleviate the capital cost pressure caused by the liquidity of locked ETH, while making the system more flexible and stable; in order to expand the market user group, centralized stablecoins such as USDC are introduced as collateral; and the introduction of RWA physical assets such as US Treasury bonds is to enhance the connection with traditional finance, etc.

It is not difficult to see that MakerDAO's ambition is not limited to making a more decentralized stablecoin on the chain, but is more inclined to expand its business scope and market user share.

I think this is the main consideration for its final decision to upgrade the Sky brand. The MKR split was 1:24,000, and the pledge loan reward plan was included, which can attract more users to provide liquidity and is also conducive to the market liquidity of Sky tokens; while the upgrade of DAI to USDS is to compete with centralized stablecoins such as Tether and Circle for market share; including the previous Endgame plan to transform into a public chain; these are all very Make Sense from a business perspective.

3) A key crux is that after DAI was upgraded to USDS, a blacklist freezing function was added, which is the key to the controversy of this brand upgrade.

However, for stablecoins, supply scalability, anchor price stability, and anti-censorship system are also an impossible triangle problem. The original MakerDAO chose stability and anti-censorship, but at the expense of scalable supply characteristics, it could not meet its large-scale expansion needs; while some algorithmic stablecoins chose scalable supply and anti-censorship, but lost the basic price stability;

And in the case of ETF spot passing, for old DeFi projects such as MakerDAO, there are unavoidable regulatory compliance issues. Unless they are content with a corner, they must cater to supervision if they want to expand the market scale.

Of course, catering to compliance is not a problem for MakerDAO alone. The market's controversy over the DAI upgrade is more about whether its stablecoin will be open, transparent, and on-chain credit will be affected. After all, MakerDAO represents the market's respect and confidence in the old DeFi project. If Sky can further consolidate its market position after the upgrade, everyone will be happy. If it falls into mediocrity, what will the Crypto market lose?

4) I heard that stablecoins such as DAI should focus on being a transaction settlement medium in the DeFi ecosystem rather than a value store. Under market volatility, DAI’s core existence is to stabilize prices by adjusting supply. If DAI is upgraded to USDS and competes for the role of value storage like USDC, DAI will lose its core lifeblood. Yes, this is what everyone thinks of DAI, but unfortunately MakerDAO doesn’t think so.