Quo vadis MKR?
KYC'd or libertarian dream?
You may think that MKR is governing the stability fee: the tricks is that it isn’t as Maker cannot set rates outside those boundaries for too long:
Rate cannot be lower than Compound supply ( because risk free arbitrage & printing large amount of supply would change the rates )
Rate higher than the Compound borrow rate? MakerDAO is no longer competitive - traders are mercenaries and they would borrow for speculation from the place with lowest costs.
But hey - MakerDAO is actually changing the governance rate? The governance fee has to be somehow competitive with USDC borrow rate.
The chart below shows shrinking MKR “hashflow“ ( outstanding DAI * governance fee per day ) : Maker is reducing the governance fee yet demand for leverage isn’t growing ( or it’s growing but on other competing platforms )
What’s the “alternative cost“ for creating MakerCDP?
You have to lock 377% ETH for each Dai.
So for $100 DAI the cost is:
$377 worth of ETH locked ( 3.30% BlockFI rate ) = $12.44
$100 * 12.5% governance fee = $12.5
$24.94 per year in alternative cost
What’s the cost to create USDC? You don’t need to hold ETH - your alternative is short term treasury bill ( 1.92% )
Total alternative cost: $1.92
So what’s the outcome of this?
MakerDAO is good for existing hard-core ETH holders ( alternative cost is lower if you actually want ETH exposure and additional leverage ) - costly but you expect ETH to grow more much than 30% per year: implied growth rate is something above 100% p.a
Maker has to adjust to “real world“ finance where people have access to different financial products and they are willing ( or even using bots for it ) to see lowest borrowing cost and highest yield ruthlessly.
With this mental framework it’s easy to understand:
Or fluidity attempt to add tokenised asset portfolio’s into Multi Collateral DAI
I could imagine MakerDAO using https://realt.co/ tokens as collateral for issuing DAI.
But such design would require both compliance and almost full integration with traditional finance world.