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Why Maker DAO’s Stablecoin was In High Demand as MKR Jumped 25%

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VOC, VoiceofCrypto, Maker, MKR, Crypto

Maker DAO’s Defi Token is almost 25% following the de-pegging event for Terra’s stablecoin UST. While other crypto assets showed rebounding on Friday, Maker DAO’s Defi token clearly had a bigger lead over the average market sentiment.

According to Coinmarketcap, MKR was the eighth largest Defi token with a market capitalization of $1.4 billion, meanwhile making DAI stablecoin, the 4th largest with a market cap of $6.47 billion.

Filling in Terra Stablecoin’s Shoes

Due to Terra’s UST collapse and USDT’s slipping away from its peg, crypto holders seemed to blow towards DAI as their preferred stablecoin choice thereby impacting its market cap by 2% which clearly indicates that users have turned to Maker to mint more DAI.

Due to disruptions in Terra’s ecosystem, its validators have halted the blockchain for about collectively 11 hours in the last two days which lead to network disruptions amid panicking crypto investors who had nothing but to bank run on UST and LUNA.

Yesterday, Luna was absolutely crushed down to $0.000353 which is a negative 99.9% from the 12th of May’s last price. As the stablecoin and token have fallen, many exchanges including Binance have halted and delisted the trading for UST and LUNA.

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Now the catch is Maker’s DAI is also an algorithmic stablecoin then why are users preferring it over other fiat collateralized stablecoins like USDT and USDC?

The reason simply falls down to the model of DAI’s over-collateralization framework which means every time a user wants to borrow some DAI against crypto collateral, they are only allowed to borrow 55% to 75% against their locked-up assets.

Also, the former head of backend services at Maker, Nik Kunkel, said, “Partially Collateralized Stablecoins and failed over and over, They cannot solve the problem of bank runs when the peg is under pressure”.

Interestingly, in a tweet thread yesterday, Maker DAO explains Maker protocol and DAI behind the scenes during the current market movements.

Also, Maker DAO wrote, “The Maker DAO is healthy, liquid and solvent with a 164% collateralization ratio and billions in liquidity reserves. All DAI is overcollateralized and its peg is as strong as the decentralized protocol”.

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Jatin Sewani is crypto markets writer/reporter based in India. He is skilled in onchain as well as technical analysis. He's currently pursuing actuarial science which lets him look at things from a risk-based perspective.

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