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Maker Introduces the First Application of DeFi to Real-World Business

flipsidecrypto Jun 16, 2020

MKR User Activity spiked 63-points in the past 2 weeks, as its community voted to include real-world assets as collateral for loans. Price increased 32% in the same time frame. 

Fundamental Data

MKR FCAS increased 25-points (2.86%) in the past two weeks, led by a 63-point (7.51%) climb in User Activity. Market Maturity also rose 46-points (6.17%), while Developer Behavior remained unchanged. 

Recent Events

Until now, the MakerDAO (Decentralized Autonomous Organization) let users deposit cryptocurrency-denominated collateral to take out loans in the U.S. dollar-pegged stablecoin DAI.

Three days ago, holders of the MKR token agreed to further diversify the collateral it accepts for loans, to also include real-world assets (RWAs). 

Specifically, the community approved supply chain invoices and musicians’ future royalty streams as security. These will be represented on the Ethereum blockchain by unique and immutable non-fungible tokens (NFTs). Small businesses and artists can take the borrowed DAI, which usually trades 1-1 with the U.S. dollar, and convert it to cash.  

Analysis

The spike in User Activity can be explained by the important push we’re seeing to diversify MakerDAO’s collateral, so as to improve liquidity and reduce risk. In the past two weeks the community voted on whether to add new stablecoins (i.e. TUSD, and Paxos Gold tokens), other cryptocurrencies (i.e. ZRX, MANA, FTM), and even fiat currencies (majority voted against) as collateral assets. 

Adding tokenized real world assets to the mix is a way for users who do not own crypto to still benefit from DeFi, by borrowing money quickly and on their own terms. This is especially vital considering the current economic crisis, where freeing up working capital could be a lifesaver. 

“These should be seen as the first two [RWAs] in the greatest portfolio of assets that’s ever been built,” said Rune Christensen, founder of the MakerDAO project. “It’s just the first step. Thousands and thousands of assets will exist alongside them.”

On The Flipside

In the event of default, lenders have to rely on the legal system to enforce their rights to the collateral, rather than an automated smart contract. Many worry that this is straying away from a trustless system. To that, Vogelsang, CEO of Centrifuge, argues: “Just because there is a legal contract in place, the asset originator cannot do whatever they want and just pull the plug.” In other words, the risk of an abuse of power remains limited. 

About MakerDAO (MKR)

Maker (MKR) is a governance token in MakerDAO’s protocol that underpins the first crypto-collateralized stablecoin on Ethereum, called DAI. Previously, in order to generate DAI, users deposited ETH or BAT into a Collateralized Debt Position (CDP), and received DAI in return. The system charges a Stability Fee to open up a CDP, which essentially works as an interest rate to control DAI supply and keep it at its $1 peg. 

MakerDAO, the project, functions as a dual-token system. The MKR token behaves as a governance token to vote on proposals within the ecosystem, most commonly in regard to the DAI Stability Fee. Meanwhile the DAI stablecoin is a product of the system’s loan mechanisms. MKR tokens are also minted or burned in accordance with price fluctuations.

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