Tuesday, March 26, 2019

Close to 1% of Total Ethereum Supply is locked in the MakerDAO Smart Contract

The creator of MKR.tools, Mike McDonald, recently posted on Twitter about the locking of 1,000,000 Ethereum coins in the MakerDAO smart contract, amounting to almost 1% of the total Ethereum supply. MakerDAO is the project behind Dai, a second generation stablecoin offering which, to the extent of caution, allows for the issuance of the US dollar on Ethereum’s blockchain.

The Benefits of the Dai Stablecoin

MakerDAO has offered to divulge an explanation to non-specialists who are not involved in or have extensive knowledge of economics or the development of the Ethereum blockchain because of the complexity of the mechanics surrounding the Dai project. Gregory DiPrisco, an author, describes the difference between Dai and, for example, Tether. He wrote that;

“You’re most likely familiar with stablecoins that hold USD in bank accounts and issue tokens on a blockchain that are ‘backed’ by these dollars. I call this legally-backed crypto, or an IOU coin because if those bank accounts should ever be frozen or if the accountants defrauded token holders, the stablecoin now becomes an IOU on whatever’s left when they eventually get the bank accounts back (if they ever regain the bank accounts). Relying on the legal system to maintain crypto-tokens inserts an unreliable middle-man into the blockchain.”

Despite the amount of ETH locked up in Maker smart contracts as reflected on the blockchain, the market capitalization of the token is actually around a third of the locked up tokens. The total market capitalization as recorded by CoinMarketCap is actually about 403,181 ETH or approximately $73 million. Dai is ranked 73rd on CoinMarketCap and has a 24-hour volume of about $11 million on the average with its price bobbing around the 1$ mark.

Dai tokens are issued to users that pool ether together (PETH) in a bid to allow functioning of the Maker system. The Dai tokens are collateralized by the deposited ether and are stabilized at $1. In these discussions, the term used for ‘wrapped Ether’ is ‘WETH.’ WETH basically tends towards a concept than a product of MakerDAO. PETH and Dai are tokens issued by Maker. In the primary Maker contract, a total of 967.507.91 ETH have been locked, as at the time of writing.

About 103 million Ethereum have been generated since its launch on July 30, 2015. This includes the 72 million coins issued for sale at the Ethereum ICO to public investors. The ICO event was run in 2014.

Reception of Dai Stablecoin in the Crypto Space

MakerDAO, whose token is PETH and possess related products which it released near the end of 2017, now account for 1 percent of all ether in existence today. Although opinions vary on Dai’s practical applications with some stating that it is limited, Dai is taking a radical approach to a complex problem. The results have also been on point too. Dai has built-in mechanisms to liquidate positions that can cause mass destabilization of the system. In this case, the Maker system will trigger a liquidation of the CDP’s collateral, selling off to the highest bidders for Dai swiftly to ensure recapitalization and ensure that Dai issued is fully collateralized.

Dai also has a considerable amount of funding from Silicon Valley, after Andreessen Horowitz’s new crypto holding fund, capitalized at 300 million dollars, invested $15 million in the asset-backed stablecoin.

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