Interpretation of the development status of MakerDAO: Expected profits to increase greatly, repurchase rules may be adjusted to capture value of the protocol

Author: Jiang Haibo, PANews

Maker is shifting from a classical DeFi protocol to RWA (Real World Assets). After raising the DSR (DAI deposit rate) to 3.49%, it finally allows ordinary users to obtain income from US Treasury bonds through the top DeFi protocol.

Recently, various statistics of MakerDAO have performed well. According to makerburn.com, Maker generated an estimated $73.67 million in annual profits as of June 29, the highest it has been in more than a year. The current price-earnings ratio is 8.43, which is also the lowest value in history, and has strong competitiveness in DeFi projects.

Various data in Maker

As shown in the figure below, MakerDAO’s net profit for one year is expected to be $73.67 million. According to the current data, Maker’s annual stability fee (including RWA) income is estimated to be 118 million US dollars, the MKR expenditure is equivalent to 4.26 million US dollars, the DSR expenditure is estimated to be 6.58 million US dollars, the liquidation expenditure in the past year is 930,000 US dollars, and the PSM transaction fee income is 15 million USD, and DAI expenditure was 33.13 million USD.

Both RWA and crypto-collateralized lending in Maker are increasing in expected yield. On the one hand, Maker’s investment in RWA has continued to increase in the past year. When the short-term U.S. bond yield exceeds 5%, Maker has used more than $2 billion in stablecoin reserves to purchase U.S. bonds or other income-generating The way (Coinbase Custody and GUSD PSM) holds.

On the other hand, the rise in U.S. bond yields also prompted Maker to simultaneously increase the minimum interest rate for DSR, ETH, stETH and other encrypted asset mortgage loans from 1% to 3.49% on June 19, so Maker overcollateralized through encrypted assets The expected return on borrowing DAI has also recently increased.

In addition, with the advancement of Maker's final plan, a series of measures to reduce costs and increase efficiency are being implemented. As of June 29, only $1.9 million in DAI was spent this month, compared to an average of about $5 million per month in March-May this year. Since the DAI spending section refers to actual spending over the past year, this data has not yet been reflected in the increase in profits.

Changes in the status of stablecoin issuers such as Maker and Circle

A year ago, 51.7% of the DAI issuance came from USDC in PSM. Maker was criticized for not only bearing the centralization risk of USDC, but also unable to capture this part of the value. However, Circle, the issuer of USDC, will issue the USD reserve of the stable currency Used to buy U.S. bonds to obtain income. With the advancement of Maker on RWA, this situation has changed, and currently only 8.8% of DAI collateral is USDC in PSM.

Makerburn’s RWA page shows that the DAI minted by RWA collateral reached 1.42 billion, generating approximately $53.11 million in revenue per year. In addition, according to RWA014, the 500 million USDC deposited in Coinbase Custody generates an annual income of about 13 million US dollars; the 500 million GUSD in PSM generates an annual income of about 10 million US dollars.

Currently, unutilized stablecoins in PSM include 500 million USDP and 414 million USDC. Both USDP and GUSD in PSM have reached the set upper limit of 500 million, and the holdings of Maker PSM account for 50.5% and 88.5% of the total issuance of these two stablecoins, respectively.

Due to concerns about centralization and security issues, Maker has planned to lower the USDP and GUSD caps in PSM. USDP will be used in RWA015, and the upper limit of GUSD in PSM may be reduced to 110 million US dollars.

In the investment of RWA, Maker will first redeem stablecoins such as USDC in PSM into US dollars, and then use them to purchase U.S. bonds. This process has also accelerated the reduction of USDC issuance in the past year. Since Maker PSM is already a major holder of USDP and GUSD, a cut or even deactivation of these two stablecoins would have a greater impact on the issuers of both.

When short-term U.S. bond yields exceed 5%, Maker increases the DSR to 3.49%. Holders of stablecoins such as USDC can convert stablecoins into DAI at a 1:1 ratio through PSM, and Maker then redeems these stablecoins Buying U.S. bonds for the dollar to obtain higher yields may form a win-win situation.

Repurchase destruction rules adjustment

Recently, the benefits of Maker governance token MKR not only come from business growth, but also potential adjustments to repurchase and destruction rules.

In addition to having governance rights in the MakerDAO system, MKR also serves as a tool to maintain system stability. When the debt of the system is greater than the surplus of the system, new MKR needs to be sold to make up for the debt; when the surplus funds of the Maker agreement exceed a certain limit, the proceeds will also be used to repurchase and destroy MKR.

There is a "surplus buffer" (Surplus Buffer) in Maker, and the profit of the agreement (revenues such as stability fees and liquidation fines minus all expenses of DAI) will be stored here as a reserve. According to the current rules, when the funds in the surplus buffer reach 250 million DAI, the buyback and destruction of MKR will be initiated. The existing surplus in the agreement is 70.5 million US dollars, and a profit of about 180 million US dollars is needed to carry out the next repurchase and destruction process.

On June 26, the Maker Forum conducted a nominal survey vote on "Smart Burn Engine Startup Parameters", hoping to change the current repurchase and destruction rules. The new governance plan sets the upper limit of the surplus buffer to 50 million DAI. When the upper limit is exceeded, the smart combustion engine will automatically use DAI to purchase MKR in the DAI/MKR trading pair of Uniswap V2, and combine the resulting MKR and DAI into a transaction For providing liquidity on Uniswap V2, LP tokens will be transferred to addresses owned by the protocol.

As of June 30, the nominal poll has ended with a 100% approval rate. If this proposal is passed and takes effect in the subsequent executive vote, since the existing surplus has exceeded the new upper limit, the surplus will be directly used to purchase MKR.

Limitations and opportunities for Maker development

Maker's investment in RWA has consumed a large amount of funds in PSM, which makes there not many stablecoins left in PSM. This may also be one of the reasons why Maker has increased the DSR significantly, hoping to attract more funds at a higher interest rate. However, the increase in encrypted mortgage lending rates caused by the increase in DSR may also reduce Maker's competitiveness in encrypted mortgage lending and limit Maker's future development.

1. The circulation of DAI continues to decline

According to the data of galssnode, the circulation of DAI has been decreasing for more than a year, from 10.3 billion in February 2022 to the current 4.68 billion, a drop of 54.6%. The scale of DAI determines the upper limit of the Maker agreement. The DAI minted through over-collateralization provides Maker with continuous stable fee income. Most of the reserves in the DAI minted through PSM have also been used to purchase government bonds to generate income. The drop in DAI issuance has had an adverse effect on Maker.

2. The number of DSR deposits increased

In addition to being able to mint stablecoins, Maker also shares part of the income of the agreement with stablecoin holders through the DSR contract, which is part of Maker's expenditure. After the DSR interest rate was increased from 1% to 3.49%, the deposits in DSR increased from 106 million DAI to the current 188 million, which also led to an increase in Maker's spending on this part.

According to Dune@steakhouse, 67.9% of all DAI is held by external addresses. Etherscan data shows that the address holding the most DAI is the PulseX: Sacrifice address controlled by the Pulsechain team. If holders of such DAI increase their deposits in DSR, it will increase Maker's payout.

3. The decline and growth of stablecoin reserves

As mentioned earlier, the proportion of DAI minted by USDC through PSM has been reduced from 51.7% to 8.8%, and the remaining part must also ensure sufficient liquidity for the normal redemption of DAI. At the same time, USDP and GUSD in PSM will also drop sharply in the near future, and there is not much money available to invest in RWA.

With the improvement of DSR, Maker's competitiveness in on-chain stable currency deposits will increase, and it may also attract new users to mint USDC into DAI through PSM to obtain higher returns. The deposit interest rate of DAI on Aave is 2.6%, the deposit interest rate of USDC is 2.83%, and the deposit interest rate of USDT is 2.69%, all of which are lower than Maker’s DSR interest rate. If the funds for casting DAI with USDC through PSM increase, Maker’s funds for purchasing U.S. bonds will also increase, which will increase the income of the agreement and form a win-win situation.

4. Opportunities brought by liquidity staking

While DAI issuance is down, DAI minted by certain collaterals, such as wstETH, is still on the rise. In the past 3 months, the DAI minted by wstETH-B Vault increased from 90.87 million to 261 million; the DAI minted by wstETH-A Vault increased from 181 million to 201 million. During the same period, the DAI minted by the ETH-C Vault decreased from 295 million to 290 million, and there was no significant decline. This shows that the new collateral in the wstETH Vault does not come from the funds in the original ETH Vault, and new funds have indeed entered.

5. The impact of Spark and other SubDAOs

MakerDAO's first SubDAO Spark has been launched, and DeFiLlama data shows that Spark's current TVL is $15.04 million, which is growing. Due to the special composability brought by Spark, the DAI (sDAI) deposited in DSR can also be used as collateral to further improve the utilization rate of funds.

Summary

Maker is shifting from a classical DeFi project to RWA. The recent adjustments to DSR, ETH, stETH and other encrypted mortgage lending rates will further enhance Maker's competitiveness in RWA and weaken its competitiveness in encrypted mortgage lending.

In the midst of this shift in business, stablecoin issuers such as Circle face significant competition and may have to consider distributing more of their profits to stablecoin holders. As for USDP and GUSD, Maker PSM holds more than 50% of the shares of these two stablecoins, and the adjustment of the PSM upper limit of these two stablecoins will cause heavy losses to the issuers of the two stablecoins.

Since there are not many funds available for RWA, this may also be an important reason for Maker's recent increase in DSR. If it can attract more funds, the amount of investment in RWA may continue to grow in the future.

The MakerDAO forum is voting on the proposal to change the rules of repurchase and destruction. The current surplus has exceeded the upper limit of the new rules. If the new rules are implemented, repurchases will begin, which will be beneficial to MKR.