An Opportunity for Maker
If you’d asked anyone about DeFi at the beginning of 2020 the first thing they would’ve told you about would’ve been MakerDAO. Maker was by far the highest profile DeFi project and one of maybe two projects with a token that had any signs of product market fit. Or so it appeared.
Eight months and a once-in-a-century global pandemic later DeFi remarkably now finds itself leading the charge of what seems like the next mega crypto bull run. Many DeFi tokens have risen hundreds of percentage points (in some cases thousands) on the year. But Maker, the king of DeFi to start the year, has severely underperformed the rest of the DeFi sector.
Maker’s Challenges
MakerDao has faced challenges on two fronts. The first being that it fundamentally does not scale with demand for Dai. The second being that it faces increasing competitive pressures from Compound and Aave.
The first challenge regarding Dai scalability was long theorized by some researchers, but has since been made real following March’s Black Thursday event. Between the massive Dai demand shock on Black Thursday and the explosive Compound liquidity mining launch in June, Dai has persistently traded above its $1.00 peg for over five months. On Black Thursday, investors were fleeing to Dai to shield themselves from volatility at the same time while Vaults (CDPs) were being liquidated, which lowered the Dai supply. Since Compound’s liquidity mining launch yield farmers have piled into Dai to farm COMP, with new Dai issuance not being able to keep pace with demand. Dai has spent most of its time in 2020 well above its peg.
Ryan Watkins was a Senior Research Analyst at Messari. Previously, he worked at Moelis & Company as an Investment Banking Analyst where he worked on deals in the technology, telecom, and fintech sectors. Ryan graduated Magna Cum Laude from the Gabelli School of Business at Fordham University.