IN BRIEF DAI
| MKR has surged 50% in value over the past week, following the collapse of algorithmic stable coin Terra USD. |
| As the governance token on the Maker DAO ecosystem, MKR’s resurgence represents a boon for the DAO’s decentralized DAI stable coin. |
| A stability mechanism distinguishing UST and DAI is that the latter requires overcollateralization through Ethereum-based coins. |
As the token of governance on the MakerDAO ecosystem, MKR’s revival can be a boon to MakerDAO’s independent DAI stablecoin. The decentralized autonomous entity that was the first and its philosophy of decentralized decision-making has a growing appeal due to the power Terraform Labs co-founder Do Kwon seemed to have over TerraUSD (UST).
As we all know terra luna just Collapsed and Create a big question marks on Stable coin system ?
In addition to operating as a decentralized stablecoin UST tried to regulate supply using algorithms that maintained one-to-one exchange rate to dollars. But the strategy failed because the demand for Terra’s the LUNA token fell and the stablecoin’s inbuilt arbitrage mechanism stopped working.
“This is directly linked to UST expanding,” said the chief for decentralized financing for Wave Financial, Henry Elder. “UST collapsed at as soon as demand began to flatten out which left Maker in the position of undisputed King of stablecoins decentralized at present.”
A stability mechanism distinguishing UST and DAI is that the latter requires over-collateralization through ethereum-based coins. This means DAI users would need pay $150 worth of Ethereum in order to receive an equivalent amount of 100 dollars DAI. In other words, if Ethereum’s value decreases the users will have to raise their collateral or else risk the liquidation.
DAI is the longest-running stablecoin that is decentralized that was created, having been established in the year 2017. In addition to enduring through the peak of 2020-21 COVID lockdown, it was able to weather the cryptocurrency snow of the winter of 2017. “Market is valuing stability and moderation in stablecoinland,” said general partner at BlockTower Capital, Michael Bucella. “Likely an investment with a high relative value, DAI is ‘performing well and has been test-driven before. It being one among the very few decentralized money investments that are still.”
In addition to requiring over-collateralization, MakerDAO utilizes other methods to maintain the value of its assets. A portion of the money that MakerDAO receives is used to buy excess MKR from secondary markets. It then will burn to keep its value in the air.