Growth In Stablecoins Is Anything But Stable

JUN 09, 2020 • 3 Min Read

Tom Shaughnessy

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Maker is the largest decentralized finance application on Ethereum, with $524M in ETH locked to back ~$120M worth of Dai, a decentralized stablecoin used within the DeFi ecosystem for payments, value transfer, applications and more.

 

Recently, the Maker community ran a number of polls (non-binding) to judge community support for adding 10 different assets as potential collateral for the system. New collateral sources would drive the creation of more Dai since people can take out Dai against these assets.

 

There are a few implications from the polls:

 

  1. The new collateral types include real-world assets, such as freight invoices which would open up real-world assets to crypto as a collateral type

  2. The addition of more collateral types could drive immense Dai creation as people are able to basically monetize their dormant assets (collateral) to obtain a liquid asset (Dai).

  3. These polls are not binding governance agreements, they are simply polls and a ton of risk modeling work and upkeep will have to be done to judge whether or not these assets should be added.

  4. When looking at the weighted participation rates for the polls (participation of holders multiplied by yes or no percent), the turnout is still within the sub 10% range, which is impressive for a decentralized community but does not represent the majority of holders. As MKR is listed on more exchanges, it should become easier to vote as UX hurdles fall, although expecting every MKR holder to be a risk expert in which assets are being added is illogical, and these holders will likely delegate their voting power in the future.

The growth in stablecoins has been nothing short of impressive as the group hit the $10B mark recently. This growth has been dominated by Tether (87%), a non-decentralized stablecoin backed by real U.S. dollars in an account.

While Dai is just a fraction of the stablecoin supply right now, it is the only stablecoin that is both decentralized and actually being used within the decentralized finance space.

Tether also dominates in terms of the number of users, followed by USDC and then Dai.

 

Winner takes most markets apply to most realms of life, I believe there may be a future where we have three main stablecoins

 

  1. A fully decentralized and trustless version for use within the decentralized world

  2. A regulated version aimed more towards large funds, governments, and banks interacting in the space, such as Tether.

  3. A more consumer-facing, non-crypto native stablecoin for use within applications and casual retail transfers (such as USDC or Libra).

 

We’ll continue to track how the stablecoin space shakes out in terms of leaders, but the growth in the sector has been strong.

 

Maker continues to grow and add new collateral types. The idea that real-world assets can be used to collateralize a decentralized stablecoin could be the real world to crypto onramp we’ve all been waiting for. While these assets could drive a lot of DAI creation in monetary terms, the real kicker will be non-crypto users now interacting with DeFi and other platforms as they effectively monetize their dormant assets. Even though this unlocks dormant collateral, Maker still grows with leverage. And it is the ‘need’ for leverage on this collateral that drives Dai creation. If everyone with a viable invoice or real-world asset pledges it for Dai, the engagement and energy around what can be done in DeFi with this stablecoin will reach new heights.

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