Maker cryptocurrency has experienced significant gains in the past month, with a 53.5% increase. Between July 15 and July 22, the cryptocurrency saw a remarkable surge of 28.1%, reaching its highest daily close in nearly a year. However, the question remains whether Maker can maintain its current growth trajectory or if there were short-term factors at play.
In mid-May, MakerDAO, the decentralized autonomous organization behind the Dai stablecoin and the Maker governance token, unveiled a five-phase roadmap named “Endgame.” This upgrade plan includes the development of a new blockchain, a rebrand, and the introduction of two tokens with updated functionalities. The primary component of “Endgame” focuses on creating incentive programs for interactions and governance participation through a new chain bridged to the Ethereum network. This will enable users to initiate hard forks in response to power attacks or abuse.
While these proposed changes may have contributed to the recent rally, it is important to note that Maker’s price remained stable for 30 days after the announcement. Therefore, other factors must have been at play to trigger the surge in price.
One significant development is the unload of Maker investments by venture capital funds. Paradigm Capital and A16z, two major venture capital firms that previously invested in Maker, have been reducing their positions in recent months. This sell pressure from venture capitalists has been a significant risk for Maker since April 2019, when secondary token sales to venture capitalists began at an average price below $250. The anticipation of other venture capitalists following suit in divesting their positions lends credibility to the recent rally.
On the other hand, Rune Christensen, co-founder of MakerDAO, has reinforced his commitment to the project’s long-term performance by reducing positions in Lido DAO and increasing his stake in MKR, as seen in his public Ethereum address.
Another factor contributing to the positive outlook for Maker is the implementation of a buyback mechanism. The previous smart burn mechanism involved burning the Dai stablecoin when a collateralized debt position (CDP) closed. However, this posed challenges when multiple CDPs closed simultaneously, leading to a shortage of Dai. The new smart burn mechanism involves purchasing MKR from the market and burning it, independent 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 significantly increased its earnings by 343% in three months by reducing reliance on the USD Coin stablecoin and incorporating yield-generating real-world assets. This shift involved reducing the stablecoin ratio from 62.4% to 20.2% over three months. Unlike other stablecoins, DAI passes yield to holders through the DAI savings rate (DSR), a variable interest rate users can earn by depositing DAI into the DSR contract. While the increase in the DSR has not yet reversed the trend for DAI supply, the higher savings rate strengthens the likelihood of sustaining Maker’s 4.5 billion DAI supply.
Given the implementation of a buyback mechanism, the increase in revenue, and the reduced risk after venture capital exit strategies, Maker appears well-positioned to sustain its rally. Additionally, Rune Christensen’s reinforcement of commitment by adjusting his holdings in favor of MKR adds further confidence in the cryptocurrency’s future prospects.