Ether’s change in market cap doesn’t impact the valuation of USD in the slightest, but it does change DAI’s.
This is because DAI is it’s own currency. While it’s anchored to $1, it is not $1. It is not redeemable for $1, it’s redeemable for $1 worth of ETH. That discrepancy is the tolerance room that enables DAI to fluctuate it’s value vs USD.
Therefore, the shifting balance between buyers and sellers of DAI is reflected by DAI’s valuation vs USD.
1 DAI = 1 DAI
MakerDAO provides the comprehension it needs to understand itself in context to its outside universe. doesn’t know $1, it knows 1 DAI. There is no way for to comprehend the value of $1 directly.
Individual, centralized price oracles can report the ETH price, but the , as a unit, doesn’t understand centralized price feeds. A centralized actor can provide a price, but this isn’t a permissionless and decentralized way of measuring ETH price. requires data in a very specific form, in order for it to be understood ecosystem-wide: Decentralized / permissionless data. Centralized price oracles do not provide this.
Instead, MakerDAO must act like the google-translate for USD-ETH pairs, as reported by various price oracles, for to reference it’s value to the Dollar. only understands decentralized permissionlessness, and MakerDAO provides the bridge between centralized external reference, and permissionless internal state. DAI is the state-vehicle for to comprehend itself, relative to a stable external refernce point.
Instead of going from $100 to $200, sees itself going from 105 DAI –210 DAI (If DAI is at $0.95). This data is shown in platforms like Uniswap, DYDX, UMA Protocol, or any future financial platform that creates a derivative with DAI. These decentralized, permisisonless platforms, that run on a decentralized, permissionless currency, DAI, use DAI’s state as a crucial component of operation.
DAI has a value proposition in it’s own right; the internal decentralized, permissionless, stable currency of . The fact that 1 DAI is pegged to the Dollar is an afterthought, a means to an end, a necessary evil. It doesn’t matter what the peg is, just that it is there. The only thing that matters is that the peg’s rubber band is reasonably tight to not create poor user-experience based on its flexibility around the peg, but not so tight that the rubberband snaps. Managing the rubberband is the job of MKR holders. Finding the perfect tautness of the Maker rubberband is MakerDAO governance summarized in a single sentence.
So long as the rubberband holds, the price of DAI doesn’t matter outside of it’s relationship to Ether. The view from “inside the ”, or, the data you are able to see in ’s state, is blind to the outside price of DAI found on Pro, or any DAI/USD pair. For the functional operation of stable DeFi found in DYDX, Uniswap, or others, the DAI / USD price is completely inconsequential…. so long the rubberband doesn’t break.
The internal Ethereum ecosystem cares more about ETH / DAI price than ETH / USD
As the economy grows, so does the economy of DAI. The binary star system, as a unit, will grow in magnitude. Multi-Collateral DAI will enable new levels of DAI proliferation, and will also expand the economy of tokenized assets on .
DAI lockup metrics will appear alongside ETH lockup metrics, and the real indicator will be “Total Value Locked”. DAI will be the main pair alongside ETH in Uniswap, DYDX, Augur, .
As all the developers build the Money Lego Playset, DAI will continue to get integrated and absorbed by various platforms. As there becomes more reasons to keep your DAI, more and more people will care less about the ETH/USD price, replaced by the ETH/DAI price.
When I purchase groceries with DAI, and the grocery doesn’t sell the DAI for any other currency, we’ll know the DAI/USD price doesn’t matter.
For those that play exclusively inside the ecosystem, the ETH/USD price doesn’t matter. As the ecosystem expands and absorbs further use cases for DAI, the demand for selling DAI will be replace by DAI being held by the ecosystem.
As a currency, DAI is about as robust as Ether was in 2016. Few use cases, high secondary market supply, little utility. But that is rapidly changing.
The greater DeFi grows, the less the peg between DAI / USD will matter.
One day, DAI will generate its own independent price feed, from a basket of external reference points, rather than using the Federal Reserves price feeds as a proxy tool. That day, the rubberband will be removed from limiting the potential of DAI, and DAI will have successfully gone through puberty, into its own native stable economy.
Published at Mon, 15 Apr 2019 00:00:44 +0000
