Answer some questions.
Following last week’s article, we continue with a Q&A with MakerDAO.
MakerDAO is a driver in the DeFi ecosystem. It basically uses ETH as collaterals to create DAI, a currency soft-pegged to USD. In this article, we dive into the monetary policy and other core mechanisms behind MakerDAO.
Defi is creating a lot of competitors for MKR which is the first mover. What is the plan moving forward?
I think that it’s not only a different way to look at competitors. Because the Maker system itself has many different services. I think that in large part we can describe it to three parts:
Maker system itself is made of Dai stablecoin: decentralized stable coin space.
The lending part. You basically have cryptocurrencies collateral to borrow so that’s a little bit more close to, like Compound or others.
and then you have a savings part like Aave.
So that’s a very interesting question.
I will say that in terms of decentralized stable coin, we’re definitely seeing some interesting interventions happening, for example, Synthetic sources into the USD.
I know in Korea there’s also Terra which is backed to Korean Won as well as many other interesting innovations that are happening and then from maker’s perspective, a Dai has been tested for a long time. For those who remember even dai was signed back, then we went to ethereum price crashing down more than 70%.
We went through a lot of volatility and now we’re in a situation where there’s a high demand for yield farming, We’re in such a dice advantage that it went through a lot of different stress tests and then still managed to hold.
Yes it was not perfect, we have to admit but it’s improving and also the governance has been in place for a long time
For a lot of different other decent stable coins especially newer ones, it’s not really tested yet.
I think that in terms of that Dai has been more tested as well as it’s been integrated. More whether that’s exchanges or other services like for example or global entities like UNICEF that has been integrated more so it allows people to access it more easily.
In terms of lending, the Maker system is very different. Because for others they’re more flexible, for example, Ava they usually allow many different collaterals, for even newer ones like cream.finance. I realized that they even support a little bit might be riskier, the newer like collateral for a maker process it’s always slower but at the same time, it also does a lot of risk analysis as well.
I think that for the Maker system it’s different and also we were practising differently as well. Because systems like Compound, you’re basically putting in a pool and the people borrow.
In extreme cases, there might be a case where people borrow so much, the people who want to withdraw they cannot report anymore. For a Maker system for DSR that doesn’t happen because we’re not like lending out to people for the interest rate. That’s also the reason why DSR rates have been lower than let’s say Compound or Ava. Then that also mints that in extreme situations like this, we can prevent it
TLDR: Maker system has been tested more and also the system is in a way conservative at the same time, it’s trying to reduce risk as much as possible.
What do you feel about the congestion on the blockchain? It will affect Maker in the long run too so how do you think about it moving forward?
For people in low-income countries, high gas fees hit them very hard. That’s also why we’ve been working with many different partners that can really try to solve it.
And we also there are so many different layer two solutions that have been trying to work with Dai, for example, xDai is one of the medics and many others are still working on as well.
I think that it’s not just Maker. The ethereum community overall as well as are very concerned about the gas fee and speed. But at the same time, there have been many innovative solutions and there are probably more that’s coming as well as Ether 2.0 if it ever actually comes around.
TLDR: We are waiting to make different innovations but already a lot of innovation is happening. It’s just still a test phase where people are trying to see how much scale we can have as well or at least use it together.
In stable credit from YFI proposed which could be a very big competitor to Maker?
We kind of have to wait and see how it launches to like better understand it or I need to try it. It is pretty interesting. It was regarding there are many different like Maker competitors like how you can compete with it.
There have been many different decentralized coins and I assume that this will be also a kind of next step in decentralisation. Stable coin will be exciting to see how it comes out and interesting our maker system, but it does its purpose better.
It can be actually used as collateral within our system, for example, USDC is already used in our system, PAC, as well as trade USD, was proposed as well. I won’t necessarily say it’s a competitor in a way. Even if it’s better than Maker, Maker can observe it. So it’s an interesting way but it also kind of shows the Defi not just about your fun game.
TLDR: Many different protocols, many different services, ideas, innovations can work together.
Do you see the MakerDAO as a way of looking at $ETH as a derivative?
Because you use USD or USDT to buy ether and from ether, you mint out Dai. So your input and output are of the same value. The only variable you’re playing with is the change in movement and price of ether.
Maker system itself is overclocked, which also means that you can use it in many different ways, some of which people can use in traditional systems as well.
For example, if you are very optimistic about ethereum yes you can have its dream as collateral mint DAI buy more Ethereum and put it back. Then we already have systems like they basically allow people to leverage pretty easily, you don’t have to do it manually
I think that it’s a way for people to use it and also where a microdot system really comes in is that a lot of people like to think that the makerDAO system is just stable coins.
TLDR: It is a stable coin, it has a data coin but if you also look deeper into it, it’s more than a stable coin. It has a lending part and also has ways for people to save. It is a product, and people can use it in any way they want.
Maker system has been tested by serious fluctuations in the capital market, and thus can better manage risks. Maker is working with other solutions to resolve speed issues and transaction fees. In the DeFi space, it is about collaboration, not competition. Lastly, DeFi may be a stable coin at its core, but really, it is a product that can have various forms like derivatives, lending, savings.