Would MKR crypto be enabled as collateral for DAI? MakerDAO’s new proposal
MakerDAO, one of the most prominent players in the DeFi space, came into existence in 2017. It was built on the Ethereum blockchain and initially permitted only ETH to be used as collateral for DAI. With a slow and gradual shift, it began allowing people to trade stablecoins with other currencies kept as collateral. As of now, stablecoins like USDC, TrueUSD, etc. back more than 50 percent of DAI stablecoin, whereas the platform is governed sustainably by MakerDAO’s cryptocurrency named MKR.
What’s the new change?
As of the latest updates, MakerDAO has suggested a change that is creating controversies. The co-founder of MakerDAO, Rune Christensen, has brought up a new proposal that would enable people to borrow and trade their DAI by keeping the native MKR token as collateral. It’s pertinent to know that the MKR token holders have major decision-making powers concerning how DAI functions. They can regulate the collateral amount required to mint and trade DAI, and operations related to DAI loans as well, as they get voting rights by virtue of holding MKR.
The crypto world has expressed its concerns, and there has been an inevitable comparison of this move with the LUNA and UST fiasco, which led to a massive wipeout of wealth from the crypto markets a few months ago. Although, as of now, DAI is backed by almost 41% collateral of USDC, which increases its stability and reduces scenarios of de-pegging.
Many users believe that this move might also give rise to issues such as an increased risk of liquidation during market irregularities and would make MKR more sensitive and destabilized. There’s a fear that some people might control the DAI governance by holding onto their MKR tokens but taking a liquidity exit through DAI.
On the other hand, some users supported the decision and expressed that this proposal might bring stability to the recently fluctuating price of the MKR token and might help with its liquidity issues, making it easier to trade.
Conclusion
As the proposal is still under development and details are yet to be out, we can conclude that although this proposal can potentially result in a rise in the adoption of the MKR token and increase some liquidity, it might also cause significant issues concerning its long-term growth in the De-Fi space. As the DeFi ecosystem is still unexplored to a large extent, MakerDAO needs to be careful and look towards getting substantial positive support from the cryptocurrency market to make this proposal succeed and increase the adoption of DeFi and MakerDAO.
