Why Maker (MKR) grew by 160% in 2023
MKR is a management token on the decentralised Maker platform. Its holders can either make suggestions on changes to the ecosystem or vote for innovations by sending coins. The main product of DAO Maker is the DAI stablecoin, launched in 2017 and pegged to the US dollar.
To mint DAI, users must make an excess deposit in cryptocurrency, the size of which varies between 110% and 200%. To get 100 coins, one must deposit Ethereum worth $150. In other words, 150% of the issued volume is reserved in a smart contract. If ETH's price declines and approaches 100%, the collateral will be sold for the liquidators' DAI at auction. After all settlements with participants are done, DAI are burned.
This system has its drawbacks, but it has survived several crypto crises, including the one that hit UST (Terra). In terms of stability, the coin is performing better than the USDC issued by the US emitter. For the past two years, DAI traded at a 10-cent discount for 20 minutes, with USDC taking 23 minutes.
Image source: cointelegraph.com
DAI ranks first by market capitalisation among decentralised stablecoins with a $5.5 billion market cap. A significant spike in the indicator happened in August when users voted for an increase of the staking floating rate to 8% APY. Since then, the capitalisation has skyrocketed to $1 billion.
Image source: makerburn.com
The rate hike was possible due to the system's yield increase, including investments in US Treasury bonds. For the past six months, community revenue increased 4.4 times to $185 million, and the expected annual profits jumped from $15.5 million to $57.9 million.
Image source: makerburn.com
The increase in DAI coins also has a beneficial effect on MKR, as additional interest paid by borrowers goes toward purchasing MKR that is subsequently burnt.
Image source: StormGain.com
However, potential investors should be careful. If a large borrower is liquidated, the value of the collateral drops below 100%, and there is a shortage of DAI in MakerDAO's reserves, the deficit will be covered by an additional issuance of MKR.
StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)