Maker has gained 53.5% over the last month, with the cryptocurrency witnessing a notable 28.1% rise between July 15 and 22, hitting its highest daily close in almost a year. While the gains are impressive, the real question is: Can the cryptocurrency maintain its current trajectory or were short-term factors behind the price rise?
MakerDAO, the decentralized autonomous organization (DAO) responsible for Dai (ICD) stablecoin and the Maker governance token (MSEK), unveiled a five-phase roadmap in mid-May. Nicknamed "Endgame", the upgrade plan it includes a new blockchain, a rebranding, and the introduction of two tokens with updated functionalities.
Rune Christensen, co-founder of MarkerDAO, revealed that the main component of "Endgame" involves the development of incentive programs for government interactions and participation based on a new chain attached to the Ethereum network. Essentially, users will have the ability to initiate hard forks in response to attacks or abuse of power.
Attributing the recent rally solely to these proposed changes seems simplistic, given that Maker's price was stable for 30 days after the announcement. Consequently, investors seeking to understand the movement of MKR need to dig deeper to identify the precise triggers behind the price surge.
VC funds dump MKR
According to decentralized finance and crypto markets analyst Nay, Paradigm Capital likely dumped a significant portion of its investments in MKR in March. Additionally, A16z, another major venture capital firm that previously invested in Maker, has been reducing its position in recent weeks.
2/ The last two US-based venture capitalists have capitulated.
Paradigm unloaded their bags 4 months ago and a16z is in the process of being liquidated right now. Interestingly, they are even using the same desktop to run on. Complete disbelief.
Polychain and Dragonfly downloaded all their $MKR years ago pic.twitter.com/DdsHs6gxzd
โ No (@nay_gmy) July 15, 2023
While determining if its selling pressure is easing is challenging, one of the biggest risks for Maker has always been the sale of secondary tokens to VCs starting in April 2019, at an average price below $250, amounting to 170,000 MKR.
According to Nay, Polychain and Dragonfly had also previously unwound their positions, lending credibility to the rally based on the anticipation that other VCs would follow suit.
Simultaneously, Christensen reinforced his commitment to the long-term performance of the project by reducing positions in Lido DAO (LIDO) and increasing stakes in MKR, according to his Ethereum public address.
Buyback Mechanism Reduces MKR Supply
Collateralized Debt Positions (CDPs) allow you to borrow DAI from MakerDAO using crypto assets as collateral. The smart contract then issues DAI, allowing borrowers to use it freely.
The previous smart burn mechanism involved burning DAI when a CDP was closed. However, this posed a challenge if numerous CDPs closed simultaneously, leading to a shortage of DAI.
In contrast, the new smart burn mechanism involves buying MKR from the market and burning it, regardless of CDP lockouts. This allows MakerDAO to respond to market changes effectively and results in a reduced supply of MKR, which has a positive impact on its price.
Real-world assets drive protocol revenue
MakerDAO has impressively increased its profits by 343% in three months by reducing reliance on USD Coin (USDC) stablecoin and incorporating return-producing real-world assets, according to MakerBurn data. This change involved reducing the proportion of stablecoins from 62.4% to 20.2% over three months.
Unlike other stablecoins, DAI passes the return to its holders through the DAI Savings Rate (DSR), a variable interest rate that users can earn by depositing DAI into the DSR contract.
Related: Korean Banks Investigate Stablecoin, Alternative to CBDC
While the DSR increase has yet to reverse the trend of the DAI supply, mainly because its 3.5% yield is lower than traditional fixed income investments that offer 5%, the protocol's higher savings rate bolsters the odds of maintaining its 4.5 billion DAI supply.
A pivot that could work
Maker appears to be well positioned to sustain its recovery due to the implementation of a buy-back mechanism, the notable 343% increase in revenue, and reduced risk following VC exit strategies. In addition, reinforcing the co-founder's commitment by adjusting his holdings in favor of MKR adds confidence to his 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.
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