There are very few projects that have managed to consistently execute on their product roadmaps after all the hype and hoopla of the 2017-18 ICO boom. Along with 0x and Augur, MakerDAO is definitely one of them. The stablecoin project has been receiving a fair bit of (well-deserved) attention and has managed to build out a decentralized community-driven ecosystem for DAI. Over the past 12 months the MKR team has successfully managed to counter the strongest criticism leveled at the project, which has been that the stability mechanism would fail if ETH were to suffer a steep crash. Essentially, as opposed to fiat-backed stablecoins, that for instance, back every one cryptodollar issued with a real USD in some bank account, DAI is decentralized, and the cryptodollar (DAI) issued is collateralized ( over collateralized) by ETH currently, to the tune of 1.5 Eth to every 1 DAI token issued. (For more insight into how DAI CDPs work, check out this earlier post.)
As you can see from the figure above, almost 1.95% of overall outstanding Ethereum Supply (which is approx $247M as per current prices) is locked up as CDPs with equivalent DAI issued.
During the slow motion train wreck that has been Ethereum’s collapse from $1400 to sub $100 over the past 12 months or so, DAI’s stabilization mechanism has remained firmly intact and the price of DAI has maintained its $1 peg. 2019 is going to be an important year as the project moves to a multi-asset collateral model, opening up a wider range of crypto assets that can potentially be collateralized in exchange of DAI. Drawing from the success of DAI and MakerDAO, the prospect of forking DAI to other regional currency stablecoins is something that is attracting a fair bit of interest. Let us explore the idea of creating a DAI-inspired stablecoin by forking MakerDAO in some more details.
The first choice to be made when looking at forking MakerDAO is to decide whether to keep or to do away with the MKR token that governs the DAI ecosystem. MKR token is a governance token that allows stakeholders to vote on project update proposals in the DAI community. Besides the governance aspect, MKR token derives its utility from DAI users, who at the end of the loan period (returning DAI for collateral deposited at the beginning) have to pay a stability fee in MKR. Some crypto purists believe this creates an additional layer of friction for users and can be done away with for a smoother experience. While removing the governance token could improve user experience to a certain extent, the project might have to rely on a group of developers and key personnel to make active decisions about future project upgrades, much like how BTC and ETH operate.
When DAI is forked to create say SDAI (SGD-pegged stablecoin), the entire CDP mechanism essentially remains the same with ETH as collateral, priced in SGD, and SDAI issued instead of DAI. However, as the health of every collateralized debt position is measured against the price of Ethereum, there needs to be a price oracle that is legitimate and tracks the price of Ethereum in the external world. In the case of SDAI, ETH/SGD market should be very liquid and the price discovery mechanism should be fair. Given that not many ETH-fiat pairs exhibit the same rich liquidity that the ETH/USD pair has, the concept of creating a DAI-like non-USD stablecoin, at least for the moment, is limited to geographies that have a robust Ethereum market denominated in their local currency.
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