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Trade Analysis: MKR and DAI

30  September 2020 | ZebPay Trade-Desk

The ZebPay Trade team is proud to bring you MKR, yet another exciting token launch to add to our DeFi offerings. Learn more about the MakerDAO.

Maker imbibes the characteristics of a smart contract, and is built on the Ethereum blockchain. Its key role is to support and strengthen the value of the stablecoin, DAI. It employs a sophisticated and dynamic system of Collateralized Debt Positions (CDP), coupled with autonomous feedback mechanisms, as well as incentivized external participants. MKR tokens are brought into supply, and then eliminated, keeping the price volatility of the  DAI in mind. The token’s main aim is to keep the DAI value as close to $1 USD as possible at all times. 

In addition to that, MKR tokens are also used to pay transaction fees on the Maker system, and provides holders with voting rights. This enables users to play an active role in the development of the Maker smart contract, and it’s native token MKR. 

Maker (MKR) Summary (at the time of writing):

Market Capitalization$515,419,617 USD
Current Price$512.56 USD
24 HR Volume $41,423,441 USD


All Time High/ Low 
$1,773.92 USD(Jan 18, 2018)
$21.06 USD(Jan 30, 2017)
ROI ( from ICO Price) 2,219.42%
Total Supply 1,005,577 MKR

The Interdependence of the Maker Protocol and DAI:

Dai is decentralized and backed by collateral. It aims to empower, and facilitate greater security, transparency and trust towards the Maker Protocol, on which the DAI can be generated and traded. Dai (DAI) is a stablecoin built on the Ethereum (ETH) blockchain. It attempts to maintain a value of $1.00 USD. Unlike centralized stablecoins, Dai isn’t backed by US dollars in a bank account. Instead, it’s backed by collateral on the Maker platform, using the MKR token. 

Maker uses the Ethereum blockchain to control and manage the control of its Stablecoin DAI using the Maker token (an ERC-20 token).  The idea behind Maker DAI is to create a rock solid, trust based stablecoin. A Stablecoin generally refers to a cryptocurrency whose coins are linked to an underlying asset. This underlying asset in DAI’s case is the US Dollar. The purpose of a Stablecoin is to eliminate a crucial problem that cryptocurrencies tend to face – volatility. 

There is however a crucial difference between DAI, which is built on the maker platform and other stablecoins. Basically, DAI’s value proposition is that it  combines the stability of a stablecoin with the truthfulness of the decentralized Ethereum blockchain. 

Maker DAI allows any person to deposit their ETH as security and use the resulting  new DAI tokens by creating a CDP. The user can trade these DAIs on the secondary market on various exchanges, against multiple cryptocurrencies and fiat currencies as well. 

DAI Summary (at the time of writing):

Market Capitalization$914,326,267 USD
Current Price$1.01 USD
24 HR Volume $96,255,925 USD


All Time High/ Low 
$1.11 USD(Mar 13, 2020)

$0.945505 USD(May 10, 2020)
ROI ( from ICO Price) 1.68%
Total Supply 902,078,788 DAI

It’s simple: against a deposit of ETH as collateral, a CDP is issued as a financial instrument, the credit amount of which is issued in the Stablecoin DAI. The deposited ETH remains locked until the issued DAI is repaid.

Maker, MKR and DAI – Forming the link between them

The Maker Blockchain, built on the ETH network, uses the native MKR token to carry out and finance transactions on it. However, the focus is on issuing DAI tokens by creating CDP’s (Centralized Debt Positions). 

Possession of MKR tokens is required to pay the stability fee for created CDPs upon redemption. MKR tokens are also used to participate in the decision-making and voting process in the maker community and to assist in the management and development of the Maker Protocol, as well as the control of collateral.

Value Proposition – What does the MKR-DAI relationship bring to the table?

  • Financial freedom with very low volatility – A price stable currency, that allows users to instantly generate DAI, on their own terms. Value is derived as one can obtain liquidity without having to forgo any of their ETH tokens.
  • Decentralized Governance –  MKR token holders community control and govern the Maker Protocol, the smart contracts that powers Dai.
  • Rapidly expanding ecosystem – Currently 400+ applications have integrated Dai, including wallets, DeFi platforms, games and more.
  • Limited supply, and growing demand – MKR is burned with each transaction, which means that the number of MKR coins in circulation will decrease over time. This could be a classic demand/supply issue, like the BitCoin, as it’s supply diminishes, the value of MKR and DAI, is likely to increase.

In today’s crypto world, MKR has presently itself as a valuable asset. The used cases of the MKR token, are wide, but some of the main applications of it include, but are not limited to:

  • Used widely to create liquidity without having to pay capital gains tax.
  • Enable the use of a cheap crypto-credit to repay expensive fiat credits.
  • Allow crypto traders to leverage their existing ETH.

Investment Analysis

Holding Period2017-20182018-20192019-20202020-Sep2020(28th)2017-Sep2020(28th)
MKR Returns4248.5%-53.4%-1.1%13.2%2170.2%

The table above shows the returns associated with the MKR token, over a range of time periods.

After the initial bout of very high volatility in euphoric early days MKR has started to trade with comparatively low volatility as compared to early days.This year MKR has appreciated 13.2%, starting the year at $433.2 and closing at $513.9 (UTC close on 28 Sep).

One factor investors should pay attention to is the fact that the more popular MKR or DAI becomes, the higher the demand for MKR and at the same time the number of MKR destroyed — this can lead to a sharp rise in the MKR price.

With that said, in the near term, MKR has strong support around $500, followed by $455, on upside it faces resistance around $600 mark followed by $670 mark. 

On the other hand as expected DAI has fairly stable around $1 within a very narrow range ($1.02 being the Sep 28 close), therefore large diversions both above and below $1 are the factors one can watch out in addition to the fundamental uses of the DAI.

As alluded to above the relationship between DAI and MKR appears to exist through the market cap of DAI and price of MKR over medium or long term. This year the DAI market cap and MKR price have shown correlation of +40% with MKR exhibiting a beta sensitivity of positive $0.26 for $1M increase in market cap of DAI.

References:

https://coinmarketcap.com/currencies/maker/

https://medium.com

https://makerdao.com/en/

Disclaimer : This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in cryptocurrencies viz. Bitcoin, Bitcoin Cash, Ethereum etc.are very speculative and are subject to market risks. The analysis by Author is for informational purposes only and should not be treated as investment advice.

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