Almost 1% Of Ethereum (ETH) Token Supply Locked In MakerDAO Smart Contract
One Percent Of Ethereum Supply Locked In MakerDAO Smart Contract
Mike McDonald, the founder of MKR Tools, tweeted yesterday information that led to quite some excitement. He stated in the tweet that,
“There is now 1,000,000 ETH locked in @MakerDAO smart contracts as of this morning. A slight rounding error away from 1% of the total ETH supply.”
The MakerDAO project stands behind Dai, which is a second-generation stablecoin that offers USD issuance on the blockchain. Though the system seems to be challenging, the project provides information that explains how it works and in a very simplified manner. This way, anyone can participate. According to Gregory DiPrisco, the author of the document:
“You’re most likely familiar with stablecoins that hold USD in bank accounts and issue tokens on a blockchain that are ‘backed’ by these dollars. I call this legally-backed crypto, or an IOU coin, because if those bank accounts should ever be frozen or if the accountants defrauded token holders, the stablecoin now becomes an IOU on whatever’s left when they eventually get the bank accounts back (if they ever regain the bank accounts). Relying on the legal system to maintain crypto-tokens inserts an unreliable middle-man into the blockchain.”
The blockchain does indicate that there is 1 million ETH tied up in the platform’s smart contracts. However, it should be noted that Dai’s market capitalization is around one-third of that. The system functions by allowing users to pool funds together, and they are then issued Dai tokens. The collateral behind the tokens is the collateralized either.
Since the smart contract platform received funding and began business, there has been over 103 million ETH generated. Dao’s maker launched the PETH tokens last year and such tokens are about one percent of all the ether there is. Though some believe that Dai does not have much practical application, there are those who are rallying behind it as a method to resolve complex problems. The platform also has a mechanism that liquidates positions and that may lead to a destabilized system.
“There remains the possibility of the incentive structures not working as expected – especially when the price of ETH keeps dipping and its value is worth less than the amount of Dai that is supposed to be backing . . . In this situation under-collateralization, the Maker system triggers a liquidation of the CDP's collateral, automatically selling it off to the highest bidders for Dai as fast as possible to recapitalize and ensure that the Dai that it issued to the original user it fully centralized.”