Viewpoint: Why I believe that MakerDAO's MKR will outperform most assets?

Author: Taiki Maeda

Compiled by: Shenchao TechFlow

In the MKR/SKY report from a few months ago, I proposed that the restart of the buyback would allow it to outperform most crypto assets on a risk-adjusted basis. Since the announcement of the buyback on February 20:

MKR increased by 46% compared to BTC.

MKR rose 70% compared to ETH,

MKR has become one of the few cryptocurrencies with a price increase year-to-date (YTD): +24%.

In this update, I will discuss why I believe this trend will continue from three aspects:

Launch the SKY staking mechanism

Forced migration of SKY tokens (over 10% of the supply will be destroyed)

SPK Token Mining Plan

Introduction to the SKY Staking Mechanism

Currently, MKR/SKY is a token that uses all protocol revenues for token buybacks. At the current buyback rate, the protocol buys back about $15 million per month (approximately $500,000 daily), which accounts for about 1% of the circulating supply bought back monthly (the highest percentage among all crypto projects).

On April 30, Rune released a proposal on the forum to launch the SKY staking mechanism. According to the proposal, 50% of the protocol's revenue will be distributed to SKY stakers, paid in USDS. In other words, approximately $250,000 will be used for buybacks daily, and $250,000 will be distributed to stakers.

Assuming that 33% of the SKY supply is staked, stakers can expect to earn a staking yield of 7-8%.

Mandatory SKY Token Migration

In the same update, it was also mentioned that a mandatory migration from MKR to SKY will take place:

Since MKR is one of the earliest ERC20 tokens (launched in 2017), there are inevitably some permanently lost tokens. This may be due to reasons such as lost private keys, lost wallets, or the death of holders. Through on-chain data analysis, I have discovered some "sleeping MKR tokens," which will inevitably be destroyed from the supply.

I base it on reasonable assumptions, such as: "If there are 23,349 MKR tokens that have not been transferred in the last 4-5 years, I can assume that about 90% of them have been permanently lost, i.e. will be destroyed." "Based on these assumptions, I expect that about 100,000 MKRs will be destroyed as a result of migration (about 11.4% of the circulating supply). By referring to other cases of lost tokens, such as the Aragon DAO, I think this is a conservative estimate.

Taking the Aragon DAO token ($ANT) in 2023 as an example, its trading price was below the treasury value at that time. "Treasury raiders" or RFVooors purchased tokens at a price lower than the Net Asset Value (NAV) and demanded to redeem the treasury for profit. This action was successful, and the process of migrating the ANT tokens to new tokens for redeeming the treasury value was subsequently initiated. During this process, about 27% of the tokens were not migrated, which can be inferred that these tokens have been permanently lost.

Therefore, I expect that in the coming months or years, 10-20% of MKR will be burned, which will support the token price. In addition, this forced migration may encourage more centralized exchanges (CEX) to list SKY, which will bring additional benefits.

SPK token launch

Spark is a project that combines the lending market with on-chain asset management, achieving a revenue of $40 million in the first quarter of 2023 with almost no incentives. They are able to borrow stablecoins at subsidized rates for SKY, thereby allocating capital on-chain.

SPK will be a "fair start/mine" token, which can only be mined by staking USDS or SKY (please refer to the relevant documentation for the specific economic model). During the first two years of the token offering, 50% of the $SPK incentive will be distributed. If a fully diluted valuation (FDV) of $500 million is assumed, $250 million of the value will be distributed to SKY/USDS stakers. This will not only provide staking yield for the native token, but will also boost the growth of USDS, which will further drive more buybacks in the future.

In addition, there are other subDAOs or "star" projects set to launch (such as Solana Star, RWA Star, etc.), and the introduction of these new projects will further support the buyback plan.

Stablecoin Bill

The "Stablecoin Act" (GENIUS ACT) is expected to be signed by Trump in July or August. Although the bill mainly targets centralized stablecoin issuers (thus having little impact on decentralized issuers), this policy narrative could bring positive market momentum for MKR/SKY. Industry experts predict that the bill is likely to pass in July or August.

Summary

Stablecoins are the future and one of the most profitable projects in the cryptocurrency space.

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The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
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