Viewpoint: Why will MakerDAO's MKR outperform most assets?

Author: Taiki Maeda

Compiled by: TechFlow

In the MKR/SKY report a few months ago, I proposed that the reboot will make it outperform most crypto assets on a risk-adjusted basis. Since the repo announced on February 20:

• MKR rose 46% compared to BTC.
• MKR rose 70% compared to ETH.
• MKR has become one of the few cryptocurrencies with year-to-date (YTD) price increases: +24%.

In this update, I will discuss from three aspects why I think this trend will continue:

1. Launch SKY staking mechanism
2. Forced SKY token migration (>10% of the supply will be destroyed)
3. SPK token mining plan

Introducing the SKY staking mechanism

Currently, MKR/SKY is a token that uses all the proceeds of the protocol to repurchase tokens. At the current repurchase rate, the agreement repurchases about $15 million per month ($500,000 per day), which is equivalent to about 1% of the monthly repurchase circulation supply (the highest proportion of all crypto projects).

On April 30, Rune released a proposal on the forum, planning to launch the SKY staking mechanism. According to the proposal, 50% of the agreement proceeds will be distributed to SKY stakeholders, paid in USDS. That is to say, about $250,000 is used for repurchases every day, and $250,000 is allocated to the pledgers.

Assuming that 33% of SKY supply is pledged, the pledger is expected to obtain a pledge yield of 7-8%.

Forced SKY token migration

In the same update, it is also mentioned that a forced migration from MKR to SKY will be performed:

Since MKR is one of the earliest ERC20 tokens (launched since 2017), there must be some permanently lost tokens. This may be due to the loss of the private key, the loss of the wallet or the death of the holder. Through on-chain data analysis, I discovered some "sleeping MKR tokens" that will inevitably be destroyed from the supply.

I based on reasonable assumptions, for example: "If there are 23,349 MKR tokens that have not been transferred in the past 4-5 years, I can assume that about 90% of them have been permanently lost, that is, they will be destroyed." Based on these assumptions, I expect that about 100,000 MKRs will be destroyed due to migration (about 11.4% of the circulating supply). By referring to other lost token cases (such as Aragon DAO), I think this is a conservative estimate.

Take the 2023 Aragon DAO Token ($ANT) as an example, when its transaction price was lower than the value of the vault. "Volume Raiders", or RFVooors, buy tokens at prices below the net worth of equity (NAV) and ask for redemption of the vault to make a profit. The action was successful, and the process of moving ANT tokens to new tokens was initiated to redeem the value of the vault. During this process, about 27% of tokens have not been moved, which can be inferred that these tokens have been permanently lost.

Therefore, I expect 10-20% of MKR will be destroyed in the next few months or years, which will support the token price. In addition, this forced migration may prompt more centralized exchanges (CEXs) to launch SKY, which will bring additional benefits.

SPK Token Launch

Spark is a project that combines lending markets with on-chain asset management, achieving revenue of $40 million in the first quarter of 2023 with little incentives. They are able to borrow stablecoins for SKY at subsidy rates, thereby allocating capital on the chain.

SPK will be a "fair start/mining" token, and users can only obtain it by staking USDS or SKY (refer to relevant documents for specific economic models). During the first two years of token issuance, a 50% $SPK incentive will be allocated. If the full dilution valuation (FDV) is assumed to be $500 million, of which $250 million of the value will be allocated to the SKY/USDS stakeholders. This not only provides staking benefits for native tokens, but will also promote the growth of USDS, which will further drive more repurchases in the future.

In addition, there are other subDAOs or "Star" projects that will be launched soon (such as Solana Star, RWA Star, etc.), and the launch of these new projects will further help the repurchase plan.

Stablecoin Bill

The "Stable Coin Act" (GENIUS ACT) is expected to be signed by Trump in July or August. Although the bill is mainly aimed at centralized stablecoin issuers (and therefore has little impact on decentralized issuers), this policy narrative may bring positive market impetus to MKR/SKY. According to industry experts, the bill is expected to be passed in July or August.

Summarize

Stablecoins are the future and are one of the most profitable projects in the crypto space.