DAI Demand Surge is Indirectly Benefitting MKR Holders

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In Brief
  • Stability fee hike could result in more MKR being burnt.

  • DAI market cap hits record $2.25 billion.

  • MKR price up 76% so far in February.

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Leading decentralized finance protocol Maker is considering adjusting its stability fees as DAI generation continues to climb. This could be especially good news for holders of MKR tokens.

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A Feb. 16 tweet by MakerDAO backend engineer Nik Kunkel has revealed that annual stability fees accrued by the protocol just breached 71 million Dai tokens (DAI).

In essence, DAI is minted when users lock collateral (usually ETH) in Maker vaults. This can then be used elsewhere in the DeFi ecosystem.

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This debt incurs something called a stability fee, which is essentially a continuously accruing interest that is paid upon repayment of borrowed Dai, and used as a way of maintaining its dollar peg.

The stability fee is then burned by the protocol, indirectly benefiting MKR holders by effectively reducing the token supply.

More Dai Means Less Maker

According to the figures, the fees would result in the equivalent of $28,000 worth of MKR being burned, which cuts into the remaining supply.

Speaking to The Defiant, crypto-economist at Maker, Sébastien Derivaux, stated;

“The cash flow is important because MKR token holders can decide to get that money as a DAI dividend (minus expenses but those are minimal and we have other sources of revenues),”

So by “printing” DAI, MKR holders ultimately benefit as pointed out by crypto researcher “Hasu;”

“Due to the large Dai base, MKR holders are now absolutely printing – over $70m of annual dividends to only ~$2.5b fdv [fully diluted value],”

More DAI means more stability fees — which means less MKR in circulation.

DAI demand has skyrocketed recently as it gets used across DeFi platforms and NFT marketplaces in preference to Tether (USDT). According to CoinGecko, its market cap is currently at a record $2.25 billion having surged 1,700% since the same time last year.

MKR Price Update

MKR prices are also on a roll at the moment trading $2,640 at the time of press. The token hit an all-time high of just over $3,000 at the beginning of February and has gained over 75% since the beginning of the month.

There is a maximum supply of just over a million tokens but this will diminish as the stability fees are burnt. Maker’s market capitalization is currently $2.4 billion according to CoinGecko.

In terms of total value locked, DappRadar is reporting a record high of $6.8 billion. It added that this has increased by a little over 200% over the past 90 days.

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Martin has been covering the latest developments on cyber security and infotech for two decades. He has previous trading experience and has been actively covering the blockchain and crypto industry since 2017.

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