How Can Andreessen Horowitz Profit From its $15 million USD Investment in a Stablecoin?
Andreessen Horowitz, an important venture capital firm, has recently made an investment of about $15 million USD in Maker, a blockchain stablecoin network. As stablecoins are known for their value, which is made to remain stable because it is pegged against reserve currencies like the USD, an important question arises: how will the company make profits?
The Dai, the stablecoin of the Maker ecosystem, will always be worth $1 USD, regardless of the BTC and ETH price. After buying this much tokens, the company acquired 7% of the total supply of MKR and has received control over about 6% of the decision-making power of the network because of this.
The Answer: With Yield Returns and The Buy Back Program
In this case, the investment is actually very similar to putting dollars an any US-based bank. You will receive a monthly or yearly return based on the program offered by the bank. Generally, the banks use the money invested by the clients to lend to trusted business and then receive a high interest rate that will make them profit.
With the 6% control that the Andreessen Horowitz firm has over the Maker network, it will be able to yield consistent returns and to use the unique structure of the Maker ecosystem to get even more money as it uses the Dai stablecoin.
Dai exists on top of the Ethereum network and it is operated by Maker. The platform uses mainly its MKR tokens and then loans Dai to investors using ETH as a collateral. As the investors send ETH to an escrow account, they receive Dai, which represents a certain value in USD. The MKR coin holders then receive an interest rate on the loan paid.
While the Dai holders pay back the amount of USD borrowed from the MKR holders, the holders pay interest to the Maker network, which burns the MKR coins and buys them with interest, which reduces the supply and pushed the prices up.
This way, it becomes clear that the main advantage that Andreessen Horowitz has is that it will have a steady yield income from the loans and from the increase of the MKR price because of the buy back program.
The value of the Dai, however, will always be set at $1 USD because of the way in which Dai is balanced. According to Katie Hun, a general partner of Andreessen Horowitz, smart contracts are used to coordinate the market and to ensure that Dai is created without the need for trusted intermediaries. This way, the system is always solvent and market has the incentive to liquidate loans, which removed the excess of Dai.
While this system looks stable, Dai could theoretically have flash crashes in which the cryptocurrency would drop a lot in short time periods. This is unlikely, however.