Maker has gained 53.5% over the past month, and the cryptocurrency has seen a remarkable 28.1% surge between July 15th and July 22nd, notching its highest daily close in nearly a year. While the gains are impressive, the real question is: can the cryptocurrency maintain its current trajectory, or are short-term factors behind the price rally?
MakerDAO, the decentralized autonomous organization (DAO) responsible for the Dai (DAI) stablecoin and maker of governance tokens (MKR), revealed a five-stage roadmap in mid-May. Dubbed “Endgame,” the upgrade plan includes a new blockchain, a renaming and the introduction of two tokens that feature updated functionality.
MarkerDAO co-founder Rune Christensen revealed that the core component of “Endgame” entails developing incentive programs for interactions and co-management based on a new chain connected to the Ethereum network. Essentially, users will have the ability to initiate a cleavage to respond to energy attacks or abuse.
Attributing the recent rally solely to these proposed changes seems simple, given that Maker’s price remained flat for 30 days after the announcement. Thus, investors seeking to understand the movement of the MKR should dig deeper to determine the exact catalysts behind the price hike.
Venture capital funds dump MKR
According to cryptocurrency markets and decentralized finance analyst Nay, Paradigm Capital likely divested a large portion of its investment maker in March. Moreover, A16z, another major venture capital firm that previously invested in Maker, has been reducing its position over recent weeks.
2/ The last two VCs in the US have given up.
Paradigm emptied their bags 4 months ago, and the a16z is in the process of being liquidated now. Interestingly, they use the same office for execution. Total disbelief.
Polychain and Dragonfly emptied everything they had MKR dollars years ago pic.twitter.com/DdsHs6gxzd
– nay (@nay_gmy) July 15, 2023
While it is difficult to determine whether their selling pressure is abating, one of the main risks for Maker has always been the sale of secondary tokens to VCs as of April 2019, with an average price of less than $250, amounting to 170,000 MKR.
According to Nay, Polychain and Dragonfly have also previously divested their positions, which gives credence to the pool in anticipation of other venture capitalists following suit.
At the same time, Christensen reinforced his commitment to the long-term performance of the project by reducing positions in Lido DAO (LIDO) and increasing stakes in the maker, according to his public rhetoric on Ethereum.
The buy-back mechanism reduces the MKR supply
Collateralized Debt Centers (CDPs) make it possible to borrow DAI from MakerDAO using crypto assets as collateral. The smart contract then issues a DAI, allowing borrowers to use it freely.
The previous smart burn mechanism involved burning DAI when CDP was closed. However, this posed a challenge if many CDPs were closed simultaneously, resulting in DAI deficiency.
On the contrary, the new smart burn mechanism involves buying MKR from the market and burning it, regardless of CDP closings. This allows MakerDAO to respond effectively to market changes and leads to a decrease in the supply of MakerDAO, which positively affects its price.
Real assets increase the protocol’s revenue
MakerDAO has increased its profits by a staggering 343% in three months by reducing reliance on the US dollar stablecoin (USDC) and integrating yield-generating real-world assets, according to MakerBurn data. This shift involved reducing the percentage of the stablecoin from 62.4% to 20.2% within three months.
Unlike other stablecoins, DAI passes returns on to its holders through a DAI savings rate (DSR), and users can earn a variable interest rate by depositing DAI into a DSR contract.
Related: Korean Bank Stablecoins, CBDC Alternative
While the increase in DSR has not yet reversed the trend of DAI supply, mainly because its yield is 3.5% lower than traditional fixed-income investments offering 5%, the protocol’s higher savings rate enhances the odds of maintaining 4.5 billion DAI supply.
hub may work
Maker appears to be well positioned to sustain its rally due to the implementation of the buyback mechanism, the remarkable 343% increase in revenue and the lower risk following venture capital exit strategies. In addition, the founding partner’s strengthening of commitment by adjusting its holdings in favor of the maker adds confidence to its future prospects.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.