TechFlow Insights
As fiat-backed stablecoins began to emerge, people started exploring alternative ways to support stablecoins. MakerDAO is one such example—it is one of the largest and longest-standing decentralized applications in existence, focused on backing stablecoins with cryptocurrencies (rather than fiat).
In 2019, MakerDAO upgraded to version V2, enabling multiple types of collateral to mint DAI, another stablecoin that replaced SAI within the ecosystem. As a result, assets other than ETH (determined by MKR governance votes) could also be used to mint DAI. Essentially, this update increased the circulating supply of DAI and reduced volatility in DAI issuance caused by ETH price fluctuations. Today, various different assets can serve as collateral, such as liquid staking derivatives (stETH and rETH), wBTC, ERC-20 LPs, and real-world assets (like treasury bonds).
In the cryptocurrency space, there is often friction between protocol-accrued value and token-accrued value. It's well known that dYdX does not return profits/revenue to token holders. But MKR is different. Once the surplus buffer reaches a certain level, the protocol buys back and burns MKR. A few weeks ago, the Smart Burn feature was introduced; unlike simple buybacks, it uses half of the surplus funds to repurchase MKR and allocates the remainder to provide liquidity in the MKR/DAI Uniswap V2 pool. Unlike burning, purchasing and providing liquidity reduces MKR's volatility during both upward and downward price movements while capturing trading fees.
Rune, the founder of MakerDAO, has been working on the development of V3 for over a year. The new version will bring significant changes to governance operations, token economics, and numerous decentralized applications, aiming to grow MakerDAO into the largest and most widely used stablecoin project in the coming years. Appropriately named "Endgame," this upgrade aims to create a powerful and enduring end state where the core of MakerDAO remains unchanged.
