Maker, a cryptocurrency, has experienced a remarkable surge of 53.5% over the past month, with a significant 28.1% increase between July 15 and July 22, resulting in its highest daily close in almost a year. However, the question arises: Can Maker maintain its current trajectory or were short-term factors responsible for the price pump? In mid-May, MakerDAO, the decentralized autonomous organization behind the Dai stablecoin and Maker governance token, introduced a five-phase roadmap called “Endgame.” This upgrade plan includes a new blockchain, rebranding, and the introduction of two tokens with updated functionalities. Rune Christensen, co-founder of MakerDAO, disclosed that the primary element of the “Endgame” involves developing incentive programs for interactions and governance participation using a new chain connected to the Ethereum network. Users will have the ability to initiate hard forks in response to power attacks or abuse. While these proposed changes may have influenced the recent rally, it is crucial to analyze the precise triggers behind Maker’s price surge.
Venture Capital Sell-Offs and Reduced Risk
The rally in Maker’s price cannot be solely attributed to the proposed changes, as the cryptocurrency remained stable for 30 days after the announcement. Nay, a crypto markets and decentralized finance analyst, suggests that Paradigm Capital, a major venture capital firm, likely divested a significant portion of its MKR investments in March. Additionally, A16z, another prominent venture capital firm that previously invested in Maker, has been reducing its position in recent weeks. The risk of secondary token sales to venture capitalists has always been a concern for Maker, especially considering the average price of these sales below $250, totaling 170,000 MKR since April 2019. The divestment of positions by Polychain and Dragonfly further supports the rally’s credibility, indicating the anticipation of other venture capitalists following suit. On the other hand, Christensen has demonstrated his commitment to Maker’s long-term performance by adjusting his holdings, reducing positions in Lido DAO and increasing the stake in MKR, as seen in his public Ethereum address. These actions contribute to reducing the risk and add confidence to Maker’s future prospects.
Creative Solutions and Increased Revenue
MakerDAO has implemented a new smart burn mechanism to address challenges with the previous system. In the past, when a collateralized debt position (CDP) closed, DAI was burned. However, simultaneous closure of multiple CDPs could lead to a shortage of DAI. The new mechanism involves purchasing MKR from the market and burning it independently of CDP closures. This allows MakerDAO to effectively respond to market changes and reduces the supply of MKR, positively impacting its price. Furthermore, MakerDAO has achieved an impressive 343% increase in earnings over three months by reducing reliance on the USD Coin stablecoin and incorporating yield-generating real-world assets, according to MakerBurn data. Unlike other stablecoins, DAI provides a variable interest rate, known as the DAI savings rate (DSR), allowing users to earn interest by depositing DAI into the DSR contract. Although the increase in the DSR has not yet reversed the trend for the DAI supply, as its 3.5% yield is lower than traditional fixed-income investments offering 5%, the higher savings rate enhances the likelihood of sustaining Maker’s 4.5 billion DAI supply.
In summary, Maker’s recent rally has been driven by various factors, including the proposed upgrades in the “Endgame” roadmap, venture capital sell-offs, reduced risk, and creative solutions such as the new smart burn mechanism. Additionally, the significant increase in revenue and the co-founder’s commitment to Maker by adjusting his holdings in favor of MKR contribute to the cryptocurrency’s positive outlook. These elements position Maker well to sustain its momentum and continue its upward trajectory.