Maker
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MKR · 13w

How the DAI stablecoin has held its peg, despite Ethereum’s recent volatility

Over the course of the last three months, the DAI stablecoin has seen momentary fluctuations from its $1 price tag, but it has mostly held against its stable peg.

The Ethereum backed stablecoin currently has a market cap of over $70 million. It also has around 6% of its total issued tokens, trading each day on exchanges.

How DAI works

The way the MakerDAO system works is that users pool Ether together (referred to as PETH, or pooled ETH), and after this pooling, the issued DAI tokens are collateralised against this asset-locked reserve.

If required to do so, the contract can auto-liquidate PETH reserves to stabilise the DAI token at $1. This auto-liquidation is governed through ownership of MKR tokens.

Today $71 million worth of DAI is backed by €226 million of pooled ETH and $335 million worth of MKR governance (to manage CDP rates and liquidation mechanisms).

In December, Coin Rivet brought you the story that 1.5% of Ethereum was locked into the smart contract behind the DAI project.

The last three months of ETH volatility

Aleks Larsen has been looking at DAI price vs outstanding supply. Looking at the data over the last three months, he went on to discuss an interesting sequence of events.

Looking at Dai price vs outstanding supply tells an interesting story: 1. ETH price drops from above $200 to ~$85 from mid-November to mid-December 2. This causes CDP liquidations, with Dai losing ~27% of supply by early-Dec pic.twitter.com/iTOcJsmTYp — Aleks Larsen (@_alekslarsen) January 16, 2019

It started with ETH price dropping from above $200 down to $85 from mid-November to mid-December 2018. This significant depreciation in the price of ETH caused CDP (collateralised debt position) liquidations, with DAI losing around 27% of supply.

He went on to state: “Over the next several weeks, DAI demand outweighs supply and price is roughly 2-4% (above its target on average).”

On December 21st, MKR token h...

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