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MakerDAO Proposes MKR as Collateral for Borrowing DAI in New Endgame Plan

MakerDAO, the DeFi protocol that manages stablecoin DAI, has proposed a new use case for its governance token MKR. According to documents prepared for the “Endgame Plan,” Maker’s comprehensive restructuring proposal, MKR could be used as collateral to borrow DAI. The proposal was approved by the MakerDAO community in October 2022 and marks a significant change for the Maker project.

The Endgame Plan was initiated by Maker’s team, led by founder Rune Christensen, to find a new direction for the project after facing several sustainability and stability issues with Maker and DAI. The plan involves dividing the protocol into sub-DAOs with specific tasks and issuing corresponding tokens. Another significant change is the scenario that turns DAI into a fully decentralized stablecoin, with no longer being pegged to $1.

However, some members of the crypto community have expressed negative reactions to the new use case proposed for MKR. Many believe that Maker should not take this step as it could create additional instability for DAI. They argue that since MKR is a governance token, using it as collateral to borrow DAI will increase the risk of liquidation during market volatility. This could lead to MKR being sold at lower prices, which could then facilitate harmful governance proposals for the protocol.

Some even go further and accuse Maker of creating a way for investors to convert MKR to DAI without immediately selling it on the market, packaged as a move to “improve DAI supply and increase MKR utility.” Others compare MKR’s new tokenomics to the infamous LUNA-UST model.

Despite the recent crypto market recovery in early 2023, MKR has experienced relatively little positive volatility. This is partly due to its limited use case and low total supply (less than 1 million MKR), but high market capitalization ($725 million). Meanwhile, DAI has become a significant player in the decentralized stablecoin space since the LUNA-UST collapse in May 2022, with a total market cap of $5.2 billion and a 4% market share in the stablecoin segment.

It remains to be seen how the proposed new use case for MKR will play out and how the Maker community will respond to these concerns. However, as the DeFi space continues to evolve, it is clear that projects like Maker will need to navigate carefully to ensure stability and trust in their protocols.

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