Editor's Note: This article comes fromVernacular Blockchain (ID: hellobtc), Author: Five Fireball Leader, reprinted by Odaily with authorization.

Editor's Note: This article comes from

Vernacular Blockchain (ID: hellobtc)

, Author: Five Fireball Leader, reprinted by Odaily with authorization.

In the list of stable coins, DAI is the second in the list, second only to USDT in popularity and popularity. Among the DeFi themes that have been touted by many people in the past two years, MakerDAO is the leader (that is, the boss) level.

Many investors actually don't understand how the stability of DAI works, they only know that it is a decentralized lending. In fact, in essence, DAI is to use leverage to do long ETH in hand.

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The essence of DAI is to do long ETH

For example, if Zhang San has $1,500 worth of ETH in his hand and deposits it in the DAI smart contract, he can lend $1,000, that is, 1,000 DAI (DAI and the U.S. dollar are anchored at 1:1).

This is the maximum loan method, because the collateral ratio of DAI is required to be no less than 150%. Zhang San can also choose to only borrow 500DAI, so that the mortgage rate is 300%, relatively speaking, it will be much safer. When the mortgage rate is 150%, if ETH falls by about 30%, automatic liquidation will be triggered, and the mortgaged ETH will be forcibly sold.

Generally speaking, no one would do that. One is because the risk is too high, and it has to be liquidated if it falls a little. Second, if you are so optimistic about ETH, you can go directly to the trading platform to open a long order with 5 times leverage.

MakerDAO's specific mortgage and liquidation process is actually more complicated than many people imagine, but for most people, they don't need to care about this process.

As for how to maintain the 1:1 anchor between DAI and the US dollar, it is more biased towards financial technology. To put it simply, it is to adjust the supply and demand of DAI in the market by setting a target interest rate (borrowing and paying interest), which is a bit similar to how the central bank adjusts the money supply through interest rates.

Of course, the interest rate of DAI is also very volatile. At the end of last year, the interest rate of DAI was still about 0.5%. In less than half a year, the interest rate was raised to 20%. Now it has fallen back to an annual interest rate of about 5%.

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In the previous MakerDAO, there was only one source of collateral, and that was ETH. Starting from the 18th of this month, the source of collateral has become a variety of cryptocurrencies, which is a bit like the "basket of currencies" in the traditional financial circle. From a risk perspective, it is a risk diversification method that puts eggs in multiple baskets.

At present, the first batch of assets added, if nothing unexpected, should be these tokens: Augur (REP), Basic Attention Token (BAT), DigixDAO (DGD), Ether (ETH), Golem (GNT), OmiseGo (OMG), 0x (ZRX).

This may be the most important upgrade of MakerDAO so far.

However, just as the market is optimistic, we might as well pour some cold water on it. After all, the blockchain world must accommodate different voices.

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What small problems does MakerDAO face?

1. Daily active users of MakerDAOAs the leader of the entire DeFi field, what is the daily activity of MakerDAO? According to DappRadar's data, less than 2000...a rather embarrassing number.If this is the daily activity that is responsible, the daily activity of other DeFi projects can be imagined. As a DeFi that challenges traditional centralized finance, its current daily activity is completely unworthy of the "big pie" drawn.

2. Governance of MakerDAO

This is a headache for all blockchain projects and even the traditional world, whether it is the presidential elections in the real world, or proposals and voting in the blockchain world.

The EOS blockchain with a particularly large audience

, its turnout rate is also very low, and MakerDAO is not immune.

A MakerDAO vote at the end of last month decided whether to increase the interest rate of DAI from 12% to 13.5% or drop to 5.5%. Originally, there were only more than 2,400 votes. The last big player came in and directly cast more than 40,000 votes. 97% of the total votes cast.

This is what is currently called “decentralization” or “on-chain governance”.

3. Compared with centralized lending, what are the advantages?

As mentioned above, MakerDAO is essentially a leveraged long tool. It used to be long ETH, but it will soon be changed to a basket of tokens including ETH.

So, what are its advantages compared with mortgage lending on trading platforms? Apart from true decentralization, or no need for KYC, I really can’t think of any other benefits. I can’t think of any other benefits. I’ve experienced the explosion of MakerDAO on the centralized trading platform.

Some people say that the less than 2,000 DAUs on MakerDAO are actually mostly arbitrage users. How to arbitrage? Arbitrage based on the interest rate spread between Maker and platforms such as Compound and Dydx.

In addition, the entire stablecoin market has a market share of more than 5 billion, DAI is less than 100 million, accounting for less than 2%, and USDT still maintains an unshakable position with a market share of about 80%.

4. Overvalued MKR?

MakerDAO has designed a dual-token mechanism, in which DAI is a stable currency, and MKR is a token for equity and governance.

So the question is, is the current MKR overvalued?

Using a minimalist model, compare MKR with BNB. In the third quarter of 2019, Binance destroyed 2 million BNB, worth about 30 million, and the market value of BNB at that time was 2.5 billion US dollars. If the parameters are fixed and calculated simply, 30 million X 4 = 120 million US dollars are destroyed each year, which can be regarded as dividends. Compared with 2.5 billion US dollars, the price-earnings ratio is about 20, which does not include 1E0, voting, deduction of handling fees, etc. other income.

According to the current burning speed of MakerDAO, 8000 MKR a year is worth 5 million US dollars. Compared with the market value of more than 6 billion, the price-earnings ratio is more than 100.

Although it is biased to compare the equity currency such as MKR with the platform currency BNB, but we can still see some clues.

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The biggest problem MakerDAO could face

Finally, let’s talk about a possible black swan event—the ETH death spiral.

Investors who are familiar with A shares, especially those who have experienced the stock market crash in 2015, may not be unfamiliar with the term "death spiral". At that time, when leverage was almost universally allocated, once the stock market suddenly plummeted for any reason, it would cause a large amount of automatic liquidation, resulting in assets being liquidated and sold, and a large number of liquidated positions further exacerbated the decline in asset prices. Leading to more liquidation and automatic liquidation... In this way, the spiral can not stop falling, nicknamed "death spiral".

In theory, MakerDAO also has this risk, although this risk does not seem to be great.

In the current MakerDAO, more than 1.8 million ETH are locked, accounting for 1.7% of the total circulation. If one day, DeFi becomes popular, and 18 million ETH is locked in it, which is 17% of the ETH in circulation, is it possible?If ETH fails to upgrade to 2.0, or one day the underlying thinking is proven to be wrong, or it is replaced by a new public chain, or the entire industry encounters a black swan that causes the price of ETH to plummet, is it possible?To avoid this black swan, the introduction of BTC or even traditional financial assets may be a safer method. this is also

epilogue

The current competitive advantages of some DeFi projects on Cosmos and Polkadot

, such as ChainX in the Polkadot ecosystem, can map BTC to Token, enhancing the functionality and circulation of BTC as an asset. Although there is actually a similar WBTC on ETH, it has always been in a state of lukewarmness.