Maker
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MKR · 10w

could adoption make dai unstable?

Hello MakerDAO community First of all I have to say that I'm impressed with the concept of the Dai Stablecoin system. I wish somebody told me about the ICO. If Dai once becomes more accessible I'll definitely use it instead of Tether. Let me share my concerns about the economic model. This is not directed to the founders, but to the community. I'm pretty confident that the price will never fall significantly under $1, because each Dai has a creator that needs to buy it back. Given the competition of the creators somebody should happily buy it back for 1 cent off. What I'm more scared of is the probability of Dai rising in value. If you want to achieve global adoption, you have to admit that the total amount of the currency will one day have to be bigger than the amount of money spent by sophisticated investors. Lets say adoption picks up and there is a constant, strong buying pressure on Dai that pushes Dai's price to $1.02. There's a small percentage of people that react and create new Dai in order to sell them at a profit. In theory with growing price the incentive to lock up Eth to make profit off Dai grows with the price of Dai and reduces Dai's price. But this only works if the new creators can assume that the price of Dai will come back down again. What if adoption grows and the price rises to 1.05$? If I'm not mistaken, the whitepaper doesn't mention any mechanisms to incentivise new Dai creation apart from lowering the interest rate. As long as the environment remains stable the pressure from speculators will be low. Similar to the Swiss Franc, now speculators would enter the boat and fear among the Dai creators would grow. Couldn't this lead to an exponential rise in value? The Swiss national bank invested billions to stabialize the Franc. Even with 0% interest, apart from a few persons with ideological motives, who would create potentially billions of new Dai when the value just consistently and exponentially rose to $1.20? I'm not that into the Make...
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