DAI supply falls to 4 mln: What will be the impact on MKR?
- DAI supply has fallen to a new low.
- MKR’s price increased, but it remained at risk of a potential decline.
The total supply of MakerDAO’s [MKR] decentralized stablecoin DAI, has cratered to a new low, according to data from MakerBurn.
Sitting at 4.42 million DAI at press time, the stablecoin’s supply was at its lowest since August 2023.
This has occurred despite the double-digit rise in total value locked (TVL) within the decentralized finance (DeFi) ecosystem since the beginning of March.
According to DefiLlama’s data, the DeFi sector’s TVL has increased from $87 billion to $99 billion in the past eight days.
The decrease recorded in DAI’s supply is often tied to the protocol’s Collateralized Debt Position (CDP) model, which is designed to help maintain the stablecoin’s value to the U.S. dollar.
When the values of the assets backing DAI decline, the interest rate for borrowing DAI on MakerDAO surges.
This high borrowing cost discourages new borrowers from seeking loans on the platform and prompts existing borrowers to repay their debts quickly to avoid higher rates.
All of these are known to result in a decline in DAI’s overall supply.
However, the past few weeks have been marked by the rally in the values of the crypto assets that back DAI, such as Ethereum [ETH], Wrapped Bitcoin [WBTC], Basic Attention Token [BAT], and Compound [COMP].
Therefore, the recent fall in DAI’s supply may be due to a general decline in interest in seeking out stablecoin loans on MakerDao.
MKR excels, but…
Despite the decline in DAI’s supply, the general market rally has led to a growth in MKR’s value.
As of this writing, the altcoin exchanged hands at $2,367, its highest price level since April 2022, according to data from CoinMarketCap.
However, an assessment of the token’s price movements on a one-day chart revealed the possibility of a short-term drawback.
While MKR’s price climbs to a two-year high, its Awesome Oscillator (AO) indicator has returned predominantly red upward-facing bars in the last week. This indicator measures market momentum.
Source: TradingView
How much are 1,10,100 MKRs worth today?
When it returns red bars facing upward, it indicates a potential bearish signal.
Therefore, a divergence between an asset’s price action and momentum measured by its AO could signal that the uptrend may not be sustainable, and there might be a possibility of a trend reversal soon.
