MAKER evaluation is not making any sense

People that follow my blog will know that I am not a particular fan on MAKER. I do think it is an honest project but it introduces an artificial token to collect fees and will get replaced by a better competitor eventually.

Independent of this, the market evaluation of MAKER seems way over the top right now. MAKER is at the moment evaluated at 500 million dollar. How is that valuation justified?

MAKER is the governance token for the DAI stablecoin. DAI is pegged to a value of 1$ and has successfully held that value despite the harsh crypto bear market. It is also fully decentralised (at least I hope so, I have not personally done a code review). In general that does not sound too bad.

Holding MAKER gives you two options. First you can decide on the parameters that are used by the algorithm to guarantee stability to DAI. This is not really an monetise-able advantage for holders. The game theory goes the other way; it is a responsibility of the holders. These have an interest to set the parameters such that DAI remains at 1$ and nothing else. Potentially there could be some attack openings, but I think these are rather small.

Second holding MAKER means that you can collect fees from the DAI users. These fees cannot be too high, otherwise people will just stop using DAI and go for one of the other many stablecoins. Let us assume that 0.1% of the annual volume of DAI can be captured by the DAI holders.

So lets look at the marketcap of DAI. It is at a tiny 77 million $. The governance token is almost 10 times larger than the actual product. That is just crazy. Going by the 0.1% fees this means that there is an annual 77.000 $ to be distributed per year. Or compared to the marketcap of MAKER an annual revenue of 0.0154 percent. That is soo tiny it can be completely neglected. Even if they would collect a massive 10% in fees, it would just be 1.5%, a mediocre earning in the very speculative crypto landscape where most projects have a real chance of dropping to 0.

Therefore the high valuation must be based on the speculation that DAI will be widely accepted. Currently the top stablecoin is tether, sitting at 2 billion $. If we assume that DAI will replace tether plus a 0.1% fee then the annual return would be 0.4% of the investment. Still not a great number.

And while the technology of DAI is much better than tether, it still is not clear this is how things will evolve. DAI's availability is not nearly at the level of tether and even when it grows over the next years, its days are limited. The fees will eventually have to move close to 0%, because there is no fundamental need for them. Otherwise DAI will be replaced by a better stablecoin before it replaces tether.

My analysis is thus that buying MAKER at the current price is betting on the scenario that DAI will moon in marketcap, just to make some small gains. While there is a real chance it will drop to zero when a better alternative arrives. It seems like a very bad bet.

Of course one may speculate on a 'greater fool', thinking that others will drive the price of MAKER up even more. But this is a dangerous game and according to my analysis MAKER is already in a huge bubble.

This is not financial advice. Please make your own research before you buy or sell any MAKER.