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Interpreting the current development status of MakerDAO: expected profits greatly increase, and repurchase rules may be adjusted to capture protocol value.

2023-06-30 17:06

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Original Title: "Interpreting the Development Status of MakerDAO: Expected Profits Increase, Repurchase Rules May Be Adjusted to Capture Protocol Value"

Original Author: Jiang Haibo, PANews

Maker is transitioning from a classical DeFi protocol to the RWA (Real World Assets) direction. After raising the DSR (DAI Savings Rate) to 3.49%, it finally allows ordinary users to earn profits from US Treasury bonds through top DeFi protocols.

Recently, MakerDAO has shown excellent performance in various data. According to makerburn.com, as of June 29th, Maker's expected annual profit is $73.67 million, the highest value in over a year. The current P/E ratio is 8.43, also the lowest in history, making it highly competitive among DeFi projects.

Maker中的各项数据

translates to

Various Data in Maker

As shown in the figure below, MakerDAO's net profit for one year is expected to be $73.67 million. Based on current data, Maker's stable fee (including RWA) revenue is expected to be $118 million, with MKR expenses equivalent to $4.26 million, DSR expenses expected to be $6.58 million, liquidation expenses in the past year were $0.93 million, PSM transaction fee income was $0.15 million, and DAI expenses were $33.13 million.

The expected returns generated by RWA and encrypted mortgage lending in Maker are increasing. On the one hand, Maker's investment in RWA has been increasing in the past year. In the case of short-term US Treasury yields exceeding 5%, Maker will use more than $2 billion in stablecoin reserves to purchase US Treasury bonds or hold them in other ways that generate income (Coinbase Custody and GUSD PSM).

On the other hand, the rise in US Treasury yields also prompted Maker to raise the minimum interest rate for DSR and encrypted assets such as ETH and stETH from 1% to 3.49% on June 19. As a result, the expected return on borrowing DAI through excess collateralization of encrypted assets in Maker has also increased recently.

Additionally, as the Maker endgame plan progresses, a series of cost-saving measures are being implemented. As of June 29th, this month's expenditure on DAI is only $1.9 million, compared to an average monthly expenditure of around $5 million from March to May this year. As DAI expenditure is partially based on actual expenditure from the past year, this data has not yet been reflected in the increase in profits.

Maker and Circle's Stablecoin Issuers' Changing Status

One year ago, 51.7% of DAI's issuance came from USDC in PSM, which led to Maker being criticized for bearing the centralization risk of USDC while not capturing the value of this portion. The issuer of USDC, Circle, used the reserve of US dollar for stablecoin issuance to purchase US bonds for profit. With the progress of Maker in RWA, this situation has changed, and currently only 8.8% of DAI collateral is from USDC in PSM.

Makerburn's RWA page shows that the DAI minted by RWA collateral has reached 1.42 billion, generating approximately $53.11 million in revenue annually. In addition, based on the 500 million USDC stored in Coinbase Custody for RWA014, the annual revenue generated is approximately $13 million; the 500 million GUSD in PSM generates approximately $10 million in revenue annually.

Currently, the stablecoins that have not been utilized in PSM include 500 million USDP and 414 million USDC. The USDP and GUSD in PSM have both reached the set limit of 500 million, with the holdings of Maker PSM accounting 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 upper limits of USDP and GUSD in PSM. USDP will be used in RWA015, and the upper limit of GUSD in PSM may be reduced to $110 million.

In RWA investments, Maker first redeems stablecoins such as USDC in PSM for US dollars before using them to purchase US bonds. This process has also accelerated the reduction of USDC issuance in the past year. As Maker PSM is already the main holder of USDP and GUSD, reducing or even discontinuing these two stablecoins will have a greater impact on their issuers.

During periods when short-term US Treasury yields exceed 5%, Maker increases the DSR to 3.49%. Holders of stablecoins such as USDC can exchange them for DAI at a 1:1 ratio through PSM. Maker then redeems these stablecoins for USD to purchase US Treasuries and earn higher returns, potentially creating a win-win situation.

Repurchase and Destruction Rule Adjustment

Recently, in addition to the growth of the business, Maker's governance token MKR has also received positive news from potential adjustments to its buyback and burn rules.

In addition to governance rights in the MakerDAO system, MKR also serves as a tool to maintain system stability. When the system's debt exceeds its surplus, new MKR needs to be sold to make up for the debt; when the surplus funds of the Maker protocol exceed a certain upper limit, profits will also be used to repurchase and destroy MKR.

There is a "Surplus Buffer" setting in Maker, where the protocol's profits (DAI earned from stability fees and liquidation penalties minus all expenses) are stored as reserves. According to current rules, the MKR buyback and burn process will only be initiated when the funds in the Surplus Buffer reach 250 million DAI. The current surplus in the protocol is 70.5 million USD, and approximately 180 million USD in profits are needed for the next buyback and burn process.

On June 26th, a survey vote was conducted in the Maker forum under the name of "Smart Burn Engine Launch Parameters" to change the current buyback and burn rules. The new governance plan will set the upper limit of surplus buffer to 50 million DAI. When the limit is exceeded, the Smart Burn Engine will automatically purchase MKR with DAI in the DAI/MKR trading pair on Uniswap V2 and provide liquidity by creating a trading pair with the acquired MKR and DAI on Uniswap V2. The LP tokens will be transferred to the protocol's owned address.

As of June 30th, the nominal investigation poll has ended with a 100% approval rate. If this proposal is passed and becomes effective in subsequent execution votes, the surplus will be used to purchase MKR directly since the existing surplus has already exceeded the new limit.

Limitations and Opportunities for Maker Development

The investment of Maker in RWA has consumed a lot of funds in PSM, which has left few stablecoins in PSM. This may also be one of the reasons why Maker has significantly increased DSR, hoping to attract more funds with higher interest rates. However, the increase in DSR may also reduce Maker's competitiveness in the field of crypto collateralized lending, limiting Maker's future development.

1. The issuance of DAI continues to decline.

According to data from Glassnode, the issuance of DAI has been decreasing for over a year, dropping from 10.3 billion in February 2022 to the current 4.68 billion, a decrease of 54.6%. The size of DAI determines the upper limit of the Maker protocol, and DAI minted through over-collateralization provides Maker with continuous stable fee income. Most of the reserve in DAI minted through PSM has also been used to purchase government bonds to generate income. The decrease in DAI issuance has a negative impact on Maker.

2、DSR deposit amount increases

Aside from being able to mint stablecoins, Maker also shares a portion of the protocol's revenue with stablecoin holders through the DSR contract, which is considered an expense for Maker. After the interest rate on DSR increased from 1% to 3.49%, deposits in DSR increased from 106 million DAI to the current 188 million DAI, which also led to an increase in Maker's expenses.

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

3、Stablecoin Reserve Fluctuations

As mentioned earlier, the proportion of DAI minted through PSM by USDC has decreased from 51.7% to 8.8%, and the remaining portion must also ensure sufficient liquidity for the normal redemption of DAI. At the same time, the amount of funds available for investing in RWA will also decrease significantly as USDP and GUSD in PSM decrease in the near future.

With the improvement of DSR, Maker's competitiveness in on-chain stablecoin deposits has increased, which may also attract new users to mint DAI through PSM with USDC to obtain higher returns. The deposit interest rate for DAI on Aave is 2.6%, for USDC it is 2.83%, and for USDT it is 2.69%, all lower than Maker's DSR rate. If the funds used to mint DAI with USDC through PSM increase, the funds used by Maker to purchase US bonds will also increase, increasing the protocol's revenue and creating a win-win situation.

4、Opportunities brought by liquidity collateral

Although the issuance of DAI is decreasing, some DAI minted from certain collateral, such as wstETH, is still increasing. In the past 3 months, the amount of DAI minted from the wstETH-B Vault has increased from 90.87 million to 261 million, and the amount of DAI minted from the wstETH-A Vault has increased from 181 million to 201 million. During the same period, the amount of DAI minted from the ETH-C Vault decreased from 295 million to 290 million, but there was no significant decrease. This indicates that the new collateral in the wstETH Vault did not come from the funds in the original ETH Vault, and there is indeed new capital entering.

5、Spark等SubDAO的影响

Translation:

5. The impact of Spark and other SubDAOs

The first SubDAO of MakerDAO, Spark, has been launched. According to DeFiLlama data, the TVL of Spark is currently $15.04 million and is growing. Due to the special composability brought by Spark, DAI deposited in DSR (sDAI) can also be used as collateral, further increasing capital utilization.

Summary

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

During the transformation of the business, stablecoin issuers such as Circle are facing significant competition and may have to consider distributing more profits to stablecoin holders. As for USDP and GUSD, Maker PSM holds over 50% of the shares of these two stablecoins, and adjustments to the PSM ceiling for these two stablecoins will cause significant damage to their issuers.

Due to the limited funds available for RWA, this may also be an important reason for Maker to increase DSR recently. If this can attract more funds, the investment amount in RWA may continue to grow in the future.

MakerDAO forum is voting on a proposal to change the buyback and burn rules. The current surplus has exceeded the upper limit of the new rules. If the new rules are implemented, buybacks will begin, which will be beneficial for MKR.