Investors have returned to Maker's native governance token and the native stablecoin DAI of the DeFi system in the wake of Terra's failure. So before investing into any coins, we need to DYOR as usual. This article will cover what DAI is, and if DAI is really safe. So let’s jump into it.
In the midst of Terra's continuous fall, investors bet on MakerDAO's DAI stablecoin, which saw a 30% increase in value.
According to CoinMarketCap, as of early Friday, MKR was the eighth-largest DeFi (decentralized finance) token with a market cap of $1.4 billion. DAI, which now has a $6.47 billion market cap, is the fourth-largest stablecoin.
According to DeFi Llama, the increase in demand was sufficient to propel MKR over Curve, SushiSwap, and Lido to become the second-largest DeFi token, representing 7% of the $146 billion in total value locked in decentralized protocols as of Friday.
The market value of DAI climbed over the previous day by about 2%, going from $6.34 billion to $6.47 billion. Even though there is only a little increase, it suggests that users have lately used Maker to mint additional DAI.
As Terra continues to crater, there has been a lot of interest in MKR and its DAI stablecoin.
Yesterday, Terra validators briefly stopped the blockchain, restarted verifying transactions, and then temporarily stopped it once more a few hours later.
The LUNA coin has since decreased by 99.9% from yesterday to $0.0000353. The TerraUSD algorithmic stablecoin, abbreviated UST, has dropped to $0.19, a 69% decrease over the previous day. Binance followed through on its promises to cease trade and delist the stablecoin and token when they plummeted.
What does Maker mean?
Maker is a DeFi protocol for lending and borrowing. Users place their cryptocurrency, such as Bitcoin or Ethereum, in a Maker Vault as collateral and manufacture DAI against it. Until they pay back their DAI, their assets are kept secure in the vault.
Like UST, DAI is an algorithmic stablecoin. However, it is overcollateralized, unlike UST. Users are therefore permitted to borrow DAI worth 55% to 75% of their collateral when they lock up their cryptocurrency and borrow money. Experts claim that this model is significantly safer.
According to Nik Kunkel, a former manager of Maker's backend systems, "partially collateralized stablecoins have continuously failed over and over." this week. "When the peg is under strain, they cannot address the root issue of bank runs."
MakerDAO detailed how the vaults operate and why forced collateral liquidations are required to maintain those overcollateralized ratios in a thread on Twitter yesterday.
MakerDAO stated in a tweet that "The Maker Protocol is healthy, liquid, and solvent with a 164% collateralization ratio and billions in liquidity reserves." All DAI is overcollateralized, and this Decentralized Protocol's peg is just as strong.
