Author:Haotian
When I saw the full screen of RIP for DAI, I knew it was not a simple matter:
1) From the perspective of the founder of censorship-resistant decentralized stablecoins, the upgrade to UDDS with freezing function has lost its "innovative" core;
2) From the perspective of complying with the DeFi compliance trend and competing with USDC for market share, the new upgrade may just be a new starting point for MakerDAO.
Next, let’s briefly talk about our views:
1) DAI is a product of a specific historical context. When the market lacked trust in stablecoins such as USDT and was in urgent need of a token that could maintain stable value, MakerDAO innovatively proposed the CDP model of mortgaging ETH to mint DAI.
In order to keep DAI 1:1 pegged to the US dollar, users need to over-collateralize to combat market fluctuations. When the collateral price drops 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 to this:
1. Users need to over-collateralize ETH and other crypto assets to obtain DAI. For example, with a collateralization rate of 150%, it is necessary to pledge $150 of ETH to mint 100 DAI. This will lock up some liquidity, increase the capital usage cost of users, and is not conducive to the large-scale expansion of DAI as a stablecoin (compared with USDT, how many people have used DAI?);
2. DAI relies on market supply and demand to stabilize its price. 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 rush to pledge ETH to obtain DAI, expanding the supply of DAI. This will put great pressure on MakerDAO's system regulation;
2) Looking back at MakerDAO’s multiple key upgrade nodes, they are essentially aimed at solving these two contradictory problems, but are not limited to this issue.
For example, the introduction of multiple assets as collateral is to alleviate the capital cost pressure caused by locking ETH liquidity, while making the system more flexible and stable; centralized stablecoins such as USDC are introduced as collateral in order to expand the market user group; and the introduction of RWA physical assets such as U.S. 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 creating 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 the final upgrade of Sky brand. The MKR was split 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. 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 Make Sense from a business perspective.
3) A key issue is that after DAI was upgraded to USDS, a blacklist freezing function was added. This is the crux of the controversy over 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; and some algorithmic stablecoins chose scalable supply and anti-censorship, but lost the basic price stability;
Moreover, if the ETF spot is approved, there are unavoidable regulatory compliance issues for old DeFi projects such as MakerDAO. Unless they stay in a corner, they will have to cater to regulation if they want to expand the market size.
Of course, compliance is not just a problem for MakerDAO. The market's controversy over the DAI upgrade is more about whether the openness, transparency, and on-chain credit of its stablecoin will be affected. After all, MakerDAO represents the market's respect and confidence in DeFi's established projects. 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 like 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.
