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Maker Price Analysis – Positive on-chain metrics

On-chain metrics suggest increasing use of the stable coin despite a currently capped supply of US$100 million.

Maker (MKR) is a utility token, governance token, and a recapitalization resource for the Maker platform, which operates as a Decentralized Autonomous Organization (DAO). Using Ethereum (ETH) as collateral, the MKR platform has been predominantly used to create Dai, a stablecoin with a soft peg to the U.S. Dollar. The MKR market cap currently stands at US$453.5 million with US$1.37 million traded in the past 24 hours. Dai currently has a free float supply of US$80.35 million.

A quick comparison between stablecoins shows that Tether (USDT) is leading most metrics by a wide margin. USDT aside, Dai leads in daily active addresses and in daily transactions metrics, despite having a circulating supply of under US$100 million. Paxos (PAX) and Gemini-dollar (GUSD) have higher average transaction values than the other stablecoins due to their small number of transactions per day. Conversely, Dai transactions are numerous and have a low average value comparatively.

Maker Price Analysis 2 Oct 2019 (1)

Rune Christensen, CEO of MKR, first began work on the project in 2015, with Dai launching in December 2017. According to Christensen, the funds for MKR were not raised by an ICO, but instead “MKR was sold off over time at a steady pace, initially through our forum and in private deals, and later through sell orders on openledger and now MKR market.” Notable MKR investors include Polychain Capital, Andreessen Horowitz, FBG Capital, and Wyre Capital which also provides a compliant fiat on/off ramp for Dai.

The Maker DAO, which currently holds 1.42% of all ETH in circulation (chart below), uses a smart contract that backs and stabilizes the value of Dai through a dynamic system of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and incentivized external actors. These external actors include keepers, price oracles, and emergency oracles. These oracles were updated and retooled earlier this month in an effort to increase decentralization and introduce an incentive model.

Although ETH is the only collateral currently accepted for backing Dai, a multi-collateral (mcDai) feature is set to launch later this year. Additional collateral options will be voted on by MKR holders. The introduction of mcDai will also include a Dai Savings Rate, paid for through the collection of stability fees, and allow the MakerDAO to compete with other DeFi projects yielding an interest rate.

Maker Price Analysis 2 Oct 2019 (2)
Source: mkr.tools

In order to participate in the system, a user must first connect an ETH wallet, such as MetaMask, to the MKR platform. ETH can then be sent to MKR to create a CDP. Because ETH is not ERC-20 compliant, the ETH must be sent to escrow and “wrapped,” creating an ERC-20 compliant crypto asset known as Wrapped Ethereum (WETH). A second crypto asset, Pooled Ethereum (PETH), is automatically inflated to pay off debt, or burned to pay for fees when necessary.

After PETH is created, the user retrieves Dai, equivalent to the debt, from the CDP, which locks access to the collateral. A user can retrieve the collateral and pay down the debt plus a continuously accruing stability fee. When the debt and stability fee are paid, the user can retrieve the collateral. A further explanation of the process can be found here.

Maker Price Analysis 2 Oct 2019 (3)
Source: cdp.makerdao.com

CDP risk parameters include a debt ceiling, liquidation ratio, stability fee, and penalty ratio. Dai started with a debt ceiling of 50 million Dai, which was raised to 100 million on July 8th, 2018, after the first debt ceiling was reached. The variable liquidation ratio reflects how volatile MKR voters expect the collateral price to be. The stability fee is an annual percentage yield which can only be paid in MKR and is burned, decreasing the MKR supply. The penalty ratio determines the maximum amount of Dai raised from a liquidation and is used to cover the inefficiency of the liquidation mechanism.

Most of the larger CDPs, with greater than one million Dai in debt (chart below), are currently under an ETH price of US$120. These CDPs can also increase or decrease collateral at any time to increase or decrease the liquidation price. All of the largest CDPs currently have a liquidation price below US$120. The largest CDP, 3088, currently holds 8.28 million in debt at a collateralization ratio of 381% and a liquidation price of US$69.42.

Maker Price Analysis 2 Oct 2019 (4)
Source: mkr.tools

In recent months, the Dai stability fee has decreased from 20.5% to 10.5% in a series of adjustments (blue line, chart below). Each stability fee adjustment is voted on by the MKR holders through a voting smart contract. Since late July, the Dai/USD price has remained above US$1.00. The decrease in stability fee likely attracted one of the largest Dai creations (draws) ever in early September at 4.4 million (teal column, chart below).

Maker Price Analysis 2 Oct 2019 (5)
Source: mkr.tools

Despite the fluctuating stability fees, Dai monthly active addresses (MAAs) have continued to increase, hitting an all-time high of 6,500 in late August (line, chart below). Since December 2018, average transactions values (fill, chart below) declined significantly, suggesting these transfers may be dapp related. Average transaction values also dropped recently with the sudden spike in MAAs. The strong rising trend of active users and exchange volume suggests incremental on-ramping and trust in the Maker ecosystem.

Maker Price Analysis 2 Oct 2019 (6)
Source: CoinMetrics

Other stablecoins, such as USDT, are typically backed by Fiat currencies, making them non-mineable collateral-backed assets. USDT (dark green and light green, chart below) has firmly maintained it’s stablecoin dominance since competition ramped up in 2018, with more than US$4.3 billion in circulation currently between all blockchains. Dai (red, chart below) has significantly gained in popularity since its inception, but has taken a back seat to other stablecoins in terms of total circulating supply, such as USD-Coin (USDC) (blue, chart below), TUSD (neon green, chart below), and PAX (pink, chart below). The GUSD (yellow, chart below) circulating supply has fallen by 90% since late 2018.

Maker Price Analysis 2 Oct 2019 (7)
Source: CoinMetrics

Turning to developer activity, the MakerDao project has 150 repos on Github, with the Dai repo being one of the most active over the past year (top, chart below). The multi-collateral CDP portal repo has also been active over the past year (bottom, chart below).

Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

Maker Price Analysis 2 Oct 2019 (8)
Source: Github – dai

Maker Price Analysis 2 Oct 2019 (9)
Source: Github – mcd-cdp-portal

In the markets, MKR (top chart below) exchange-traded volume has been dominated by ETH and USDT pairs over the past 24 hours, while Dai (bottom chart below) exchange-traded volume has been dominated by ETH and USDC pairs. Most of the MKR trading volume occurs on OKEx and Bitfinex, while Dai is the base currency of choice for most decentralized exchanges. Coinbase currently has tradable MKR pairs for the UK, EU, Canada, Singapore and Australia markets, but they’re not available to customers in the US. Coinbase Pro also has an ETH/DAI pair on the platform. Huobi also added support for MKR in late August. Collectively, these MKR trading restrictions are likely related to the status of MKR as a security.

This week, several trading platforms, custodians, and trading firms announced a new Crypto Ratings Council (CRC) which provides a framework for the likelihood an asset does or does not represent a security. The CRC includes; Anchorage, Bittrex, Circle, Coinbase, Cumberland, Genesis, Grayscale, and Kraken. Of the assets currently rated by the Council, MKR topped the list as most likely to be a security. Binance, Bitflyer, Kraken, and Poloniex do not currently have MKR pairs.

Maker Price Analysis 2 Oct 2019 (10)

Maker Price Analysis 2 Oct 2019 (11)

Technical Analysis

MKR has limited chart history due to both a lack of exchange data and trading interest. New exchange listings and consistent daily volume across multiple exchanges will be one sign of increased speculative interest. All market pairs in the following analysis will be assessed using the weekly and monthly exponential moving averages (EMAs), as well as volume.

On the daily MKR/USD pair, volume has increased slightly since February, suggesting some correlation between trading volume and an increase in MKR voting proposals. The 7-day EMA and 30-day EMA have essentially been bearishly crossed since July. Price is now sitting at a significant volume support node and multi-month low. A move beyond US$1,500 would be a new period of price discovery.

Maker Price Analysis 2 Oct 2019 (12)

On the daily MKR/BTC pair, the 7-day EMA and 30-day EMA have essentially remained bearishly crossed since April, with all bullish attempts quickly denied. The most recent bullish cross on the 7-day EMA and 30-day EMAs has survived longer than any previous cross since April, suggesting the increased potential for bullish continuation. Over head volume resistance sits at 0.05755 BTC with significant support at 0.05 BTC. Other significant volume-based resistance stands at 0.1 BTC, with any further upside likely finding resistance at 0.13 BTC. The record high for the pair currently sits just under 0.2 BTC.

Maker Price Analysis 2 Oct 2019 (13)

Lastly, on the daily MKR/ETH pair, price has remained range-bound on declining volume since June. One MKR token is currently worth 2.56x the price of ETH itself, largely due to the differences in circulating supply of MKR and ETH tokens. The 7-day EMA and 30-day EMA are currently bearishly crossed, but are unlikely to be meaningful until price breaks out of the active range. Prices above 2.85 ETH should see bullish momentum into the psychological resistance of 3.00 ETH. Most of the historic volume for the pair sits between 3 ETH – 4 ETH, with an all-time high just under 5.50 ETH per MKR token.

Maker Price Analysis 2 Oct 2019 (14)

Conclusion

MKR and Dai compose a complex stable coin system which brings transparency, auditability, stability mechanisms, fallback procedures, and scalability to the stable coin universe. On-chain metrics suggest increasing use of the stable coin despite a currently capped supply of US$100 million. Despite several sharp drops in ETH throughout late 2018 and 2019, Dai has remained relatively stable throughout the tumultuous volatility. Although Dai prices can be more volatile than USDT, Dai’s stability fees act to combat any wild swings in volatility and are adjusted accordingly. As Dai has recently held above US$1.00, the stability fee has decreased 10% in recent months. Multi-collateral Dai is likely coming over the next few months, which may bring increased stability to the ecosystem.

Technicals of the MKR token are limited due to the nascent exchange listings or complete lack thereof. Exchanges may feel hesitant to list MKR pairs because of the potential unregistered security’s offering implications. Coinbase’s MKR pairs excluding US customers and the recent Crypto Ratings Council evaluation suggests this is an ongoing concern. Since the beginning of Q2, MKR has made significant declines against BTC and ETH pairs, while also declining on the USD pair. Multi-collateral Dai and further voting proposals will likely lead to increased use and velocity of the MKR token, which may lead to bullish price action.


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