MakerDAO, the organisation behind one of the world’s most successful stablecoins, have released the multi-collateral version of the Dai stablecoin. The upgrade aims to revolutionise the world of finance bringing new advantages into the world of cryptocurrencies.
By: Jeppe Mølgaard
The price of popular cryptocurrencies like Bitcoin and Ethereum are too volatile to ever be used as an everyday means of payment. That’s why the Danish crypto frontrunner MakerDAO created their stablecoin Dai, that always preserves a 1:1 value with the dollar.
Unlike other stablecoins in the crypto economy the value of Dai isn’t backed by regular money in a locked bank account. Dai’s value is ensured by the Maker platform which uses smart contracts to stabilise the price of Dai together with a significant amount of the cryptocurrency Ethereum as backing.
Now MakerDAO has upgraded their stablecoin so it can be backed by all types of collateral improving stability of the Dai and bringing several perks to users of the Maker platform. With this upgrade, they aim to change the world of finance.
“One of the major features of this upgrade, is the introduction of Dai Savings Rate, meaning people holding Dai will earn interest on their money as they would do with a savings account in a bank,” says CEO of MakerDAO Rune Christensen.
The reason MakerDAO is able to provide its stablecoin holders with a savings rate is because their network now supports security tokens of all kinds. This means people can put money into the network by transforming real-life valuables like stocks, bonds, fiat money or even real estate into a security token, which supports the value of Dai.
“The Maker network connects everyone without any intermediaries. This means, that the interest people pay for lending money from the network goes straight to the people putting money into the network – the people tokenizing assets and the Dai holders,” says CEO of MakerDAO Rune Christensen.
Security is key
Until now Dai has successfully preserved a 1:1 value to the US Dollar with only Ethereum as backing even though Ethereum’s value has dropped more than 85 percent since it’s peak in late 2017. But it has not been without risks.
“Before this upgrade, the Dai was in its most vulnerable position because its constant value was ensured by just one type of collateral. We have shown, that the network can keep the value of Dai intact even though Ethereum as a currency has seen some major losses the last year. But if the value of Ethereum dropped to 0 before the upgrade, so could the value of Dai,” says CEO of MakerDAO Rune Christensen.
Even though the new multi collateral Dai can now also be backed by a lot of other cryptocurrencies like Bitcoin, Rune Christensen underlines that it has been a priority for MakerDAO to open the network up to the world of finance outside the crypto market.
“It’s really important that the collateral in the Maker network is diverse to create as much security as possible. We have achieved that now because the value of Dai can be backed by all types of securities. So even if the crypto market plummets, the value of Dai will still be held up by all the other types of collateral invested in the network,” says CEO of MakerDAO Rune Christensen.
MakerDAO has built the digital infrastructure, where both private investors and companies can tokenize their assets and then lend them out to each other. But it is not MakerDAO themselves that tokenises the real-world assets. That is up to asset keepers, and it is their responsibility to live up to all legal requirements in the country where they operate from:
“The rules and regulations vary a lot from country to country. But a classical way to tokenize assets is to create a company that works as a shell around the assets. Then the company informs the authorities that the tokens on the blockchain work as the company’s stocks, and then a middleman reports back to the authorities every time the tokens switch hands to live up to all regulations of the country,” says Rune Christensen.
Besides having real-world assets supporting the price of Dai, Maker also has the MKR Token, that works as the company’s stock. The MKR token gets created and destroyed in response to price fluctuations of Dai to collateralise the system.
Changing the world of finance
Even though the single collateral Dai is a beta version of MakerDAO’s product, it has gained a lot of popularity around the world positioning itself as one of the most promising financial technologies of the future. At time of writing, the MKR token representing MakerDAO’s value is currently the 21 most valuable cryptocurrency in the world by market capitalisation according to coinmarketcap.
And it seems like a lot of big financial players believe in MakerDAO’s vision. Since last year the company has raised around 40 million USD and made several partnerships. One of the biggest investments on USD 15 million was made by one of the foremost venture capitalist firms in the world, Andreessen Horowitz.
“As a first mover and innovator in stablecoins, MakerDAO represents a very compelling opportunity in the crypto space. MakerDAO’s technology, ecosystem and talent have put theory into action to deliver a decentralised stablecoin that we believe will help drive the future of the crypto economy,” says Katie Haun, General Partner at the a16z crypto fund by VC firm Andreessen Horowitz.
Thinking about the future of the economy is also something that has been a high concern for CEO Rune Christensen when developing the Maker platform. According to him the combined opportunities in the Maker Technology (Dai stablecoin, savings rate, loan opportunities and collateralisation of real-world assets) have the potential to change how the financial markets operate today for the better. But creating MakerDAO is not about ideology according to him:
“I believe in creating a practical solution where everyone is on the same terms. That’s not the case today because people without money are further away from the core of the financial system and therefore they have to go through more intermediaries when taking a loan. Maker is connecting everyone directly to the core of the economy giving people the exact same conditions on loans. This benefits people in developing countries and traders on Wall Street alike because diversity of collateral means increased security for assets. People will always benefit from better integration and global corporation.“