Continuous Problems with Stablecoins and MakerDAO’s Solution:
2019 has been the year of the stablecoins. Besides the massive rounds being raised, and the attempted launch of Facebook’s Libra, another major event took place recently for stablecoins, and that is the launch of Multi-collateral Dai. Nevertheless, as with all stablecoins, there continues to be uncertainty with a few aspects of MakerDAO’s platform. Legality, governance and oracles are the three that I will focus on.
I was joined by Gustav Arentoft, Head of Business Development of Europe for Maker, to explore some of these issues.
When it comes to financial regulation, the existing infrastructure is very strict. We’ve seen why this is the case, since companies like Basis named regulatory pressure as the primary reason for ending their startup. Furthermore, in an industry that functioned through token sales, some of the products offered to investors will cause long standing legal problems to projects.
Gustav stated that MakerDAO is well protected from the above. The DAO is decentralized, therefore governance is part of the community and cannot be shut down, similar to other major decentralized projects, like Bitcoin and Ethereum. CDPs and derivatives have been financial tools for decades already, and Maker is using clear cut processes that follow the existing finance laws. Lastly, no Maker cryptoasset has been sold in public. There has never been a public token sale, and thus Maker is released from such legal risk.
Oracles are another significant risk for all stablecoins. An oracle is a feed that connects real world data to inter-system decision takers. It allows a platform like Maker to see the exchange rate of Dais on the markets. Without a trusted source for that data, key decisions for the platform, like the Stability and Dai Saving rate, will not be accurate to real time market numbers and sentiment. Many argue that the easiest way to game a dynamic and highly experimental project like Maker is through the centralized oracle data feeds.
Maker understands this, and Gustav informed me that there are a number of potential solutions that are being proposed. The current plan to be implemented is the increase the number of Oracles, and use the mean of all data feeds to find a trusted figure. This is a proposal that has been explored significantly in decentralized governance research, and will most likely be launched in 2020, after approval from the community.
Finally, governance as a whole is one of the most interesting problems for a decentralized project. Maker, as with any other DAO, has felt the problem of voter apathy. Plenty of MKR holders might not participate in governance votes and discussion. Perhaps they care to hold MKR only as a speculative investment tool, or perhaps the user experience of participating in these governance votes is stifling for busy, non-crypto-native users.
In any case, there is no concrete solution on governance that Gustav could give me. This is a problem that simply needs more work. However, after a closer look, Maker is doing a very good job engaging their community. Besides the inherent economic incentives in place for being active, the team hosts numerous open meetings on a variety of topics. Everyone can voice their opinions, and MKR voters have the final say in almost all of the key factors. Their current efforts are especially commendable during the migration between Sai and Dai - where almost 50% of all existing Sai has already converted to MC Dai in under a month.
Summary and Tracking Tools:
There are some projects that you know will create tremendous value. Whether or not MC Dai will succeed in the long run, the work conducted by Maker is a phenomenal case study for the whole industry. For that alone, the project is highly praiseworthy. Much of the testing and discussion taking place in the Maker forums today will be a breeding ground for new ideas, new DeFi projects and value tomorrow.
For this reason, I recommend blockchain and cryptocurrency enthusiasts to closely follow what Maker is doing. Through the conversation with Gustav, I compiled a list of recommended tool you can use to track ongoing progress within Maker.
· Oasis App - https://oasis.app – Where you can convert Sai to Dai.
· DaiStats - https://daistats.com – Where you can track a number of variables within the Dai CDPs.
· MKRTools - https://mkr.tools – Where you can find real time data on Dai and MKR.
· Awesome MakerDAO - https://awesome.makerdao.com – An in-depth FAQ of the platform.
· MakerChat - https://chat.makerdao.com – A MakerDAO forum anyone can access.
I hope Stable.Report readers find these resources interesting, and that they will explore and study them as they review the stablecoin ecosystem.
By Xenofon Kontouris - Writing for Stable Report