Maker Foundation Submits New $120 Million Debt Cap for DAI After Surpassing $100 Million


DAI, the non-collateral based stablecoin, primarily used for lending and borrowing loans on Ethereum based De-Fi network hit its initial revised market cap of $100 million against the $339 million worth of Ether locked as collateral. Since the token has reached its debt cap, no more DAI can be generated unless the cap is increased.

Steven Becker, president of Maker Foundation said,

“MakerDAO has hit that limit and no more [DAI] can be generated until that debt limit is increased.”

MakerDAO the parent company behind the DAI token has now proposed a new debt cap of $120 million for the stablecoin. The proposed increase in debt cap will be put up for voting, and holders of MKR governance token would vote for or against the proposal.

However, this is not the first time the MakerDAO has increased the debt cap once it has been reached. In 2018, the foundation doubled the debt cap from 50 million to 100 million.

De-Fi platforms in the last year have gained quite a market momentum as evident from the loaned DAI reaching its debt cap. De-Fi platforms allow customers to lend or borrow loans in the form of stable coins like DAI and USDC against Ether as collateral locked in smart contracts.

Maker Foundation claimed that they had no demographic data on who is borrowing these loans. LoanScan reported that there have been a total of 35,919 transactions in the past month itself.

Joe Quintilian from MakerDAO foundation had claimed back in July this year that the De-Fi based platform would make lend its first $3 million loans by 2020. As of today, there are 5 loan transactions exceeding the $3 million mark, out of which two are more than worth $8 million each.

What would Happen after Raising the Debt Cap Again?

Raising the debt cap might lead to a rise in interest fees that users pay once they close their DAI loans. The interest rate has fallen from 18 percent to 5.5 percent this year itself. A recent proposal this week itself was made to increase the interest rate back to 9.5 percent. However, with the proposal for debt cap set to go under the voting, the current interest rate of 5 percent will be discussed as well.

The voted turn out for important decisions has been quite low in recent times may because the MKR governance token itself cost $612.

One of those Maker holders Taylor Monahan, CEO of the wallet startup MyCrypto, believed that there are certain risks involved with defi which no is talking about, she said,

“Let’s be upfront about what the risks actually are, rather than say they are so minimal. We can’t just let [growth] overshadow the fact that there are unintended consequences and unmitigated risks.”

Monahan was pointing towards a certain aspect of the defi programs which are still not robust and possess potential risks, one of them being the automatic liquidation where if the price of collateralized Ether falls below a certain price the loan is liquidated.

Another aspect that Monahan raised a concern about is the migration of loans from the current single-entity based collateral to the upcoming multiple entity based vault system. But Becker refuted saying that there will be ample guidance for the users to understand how to migrate their loans.

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