MakerDAO, the flagship project of 2019’s decentralized finance (DeFi) boom, launched the multi-collateral version of its DAI stablecoin on Monday.
Users can now “lock in” BAT as collateral for dollar-pegged loans. Previously, only ether might be used as collateral.
But despite the rapid climb of the world and therefore the diversification of assets involved, DeFi remains influenced by a couple of central players: Namely, Polychain Capital, a16z, 1confirmation, and unknown MKR whales.
With governance decisions largely influenced by those with the most important stakes to lose, some crypto veterans are pushing for a better examination of MakerDAO’s marketing directives.
MakerDAO could also be diversifying the assets it works with, but it’s an extended thanks to attend decentralize the facility to form key decisions.
On Monday, the cryptocurrency lending platform moved to multi-collateral stablecoin loans, marking a replacement era for the decentralized finance (DeFi) movement.
Previously, collateral for loans could only be committed in ether, but now MakeDAO also works with the essential Attention Token (BAT) and also offers a DAI savings option. (The old version of the ether-backed DAI stablecoin is now called SAI, signifying “single-collateral.” For the sake of simplicity, this text will use the term “DAI” interchangeably because service providers may automatically convert it and community pages like the MakerDAO GitHub are urging people to freely turn their SAI into DAI.)
But while users have more choices, a comparatively small group of people govern the protocol.
More than 150 unique MKR token addresses voted in Monday’s transition proposal, one among the very best voter turnouts so far , MakerDAO president Steven Becker said. However, that vote included roughly 80,000 tokens estimated to cost $662 each and just five addresses represented quite 50 percent of voting tokens. In short, the votes cast by people with modest holdings were mostly a ceremonial nod of approval.
“It was really important to showcase what governance [participants] have wiped out selecting BAT, so as to work out what to try to to going forward with other collateral types,” Becker said in an interview Monday.
It’s unclear who the voters were that powered the BAT choice, but Becker said the attributes discussed publicly calls included “liquidity in secondary markets” like Coinbase and other exchanges. The protocol itself is open source, but the people building accessible portals thereto are generally working for such traditional firms.
The bottom line is that the majority of individuals funding this movement, which they keep the facility to influence, could fit into one room. during this sense, DeFi isn’t all that decentralized yet.
The current DeFi ecosystem is predominantly made from “centralized products and services” with a far better user experience than interacting directly with blockchain protocols, said veteran crypto investor Meltem Demirors.
“We are hopeful that over time, disintermediation will become possible,” Demirors said, adding that “market forces” and regulations have forced “intermediation and centralization by service providers.”
Rather than getting hung abreast of prompt decentralization, DeFi companies should specialise in transparently disclosing their roles within the ecosystem and therefore the fees they charge, she said.
Those roles are often intertwining. for instance , ethereum creator Vitalik Buterin funded the first development of exchange tool Uniswap, founder Hayden Adams told CoinDesk in May. Then Paradigm, including Coinbase co-founder Fred Erhsam, led the primary venture round for Uniswap.
Paradigm also participated within the recent Compound raise, and this fund was only one of several from the Series A that hailed from an equivalent group funding MakerDAO, like Andreessen Horowitz’s a16z crypto fund. Polychain Capital, headed by Coinbase alumnus Olaf Carlson-Wee, and Coinbase Ventures both also invested within the DeFi startup Dharma Labs. Following the raise, Dharma Labs switched to leveraging Compound’s protocol.
Further, contrary to what the term DeFi might imply, MakerDAO can “terminate or suspend” access to DAI, and therefore the Compound lending pools are literally custodial. this might be a compliance measure, to avoid usage that violates economic sanctions. After all, the people working for companies just like the Maker Foundation and Coinbase interact with the technology in measurable ways, albeit they are doing not claim ownership of it.
Back in 2018, four years after MakerDAO started, Demirors described Coinbase together of the entities using “fancy financial engineering” to supply the illusion of growth.
While there are many unknown DeFi users, those that benefit the foremost from it appear to be those that have influence within the system.
Even Compound founder Robert Leshner said thus far “teams in crypto that have stockpiles of DAI and crypto” are the foremost frequent protocol users.
Blockchain consultant Maya Zehavi, who agreed with Demirors’ recycling theory because it relates to DeFi startups Compound and Dharma Labs, tweeted it’s an secret within the industry that MKR market makers are shoring the ethereum ecosystem with externalized risk. In her tweet, Zehavi said this model is evocative of a “central bank.”
For example, the most important liquidity provider currently contributing to the Compound ecosystem offered quite $1 million worth of DAI and appears to be repeatedly swapping parts of this pool for USDC, a stablecoin developed partially by Coinbase. Indeed, Coinbase announced in September it might be “investing USDC directly within the [Compound] protocol.”
It may be timely to call the DeFi system “decentralized,” but there’s certainly an excellent deal of capital involved. consistent with DeFi Pulse, there’s over $660 million worth of cryptocurrency locked up in these smart contracts. This represents triple the quantity involved this point last year, when there was $220 million worth of ether in these systems.
On the opposite hand, Tether co-founder William Quigley said the DAI ecosystem is way more decentralized than his godfather stablecoin.
“I would call it quite decentralized, apart from the oracle system,” Quigley said of up to date DeFi. “On-chain leverage may be a fantastic creation and that i credit MakerDAO thereupon .”
However, the addition of BAT because the first asset beyond ether supported by Monday’s multi-collateral update complicates notions of a Coinbase “mafia” calling the shots within the DeFi realm. None of the known investors in Brave Software, the corporate behind BAT, are DeFi leaders. The BAT token sale in 2017 notoriously sold out within seconds, which means whales and veteran investors gobbled up the tokens. It’s unclear whether DeFi investors are among them, although 1confirmation said it didn’t participate within the BAT sale. (CoinDesk reached bent the BAT team and can update the article if we hear back.)
“I have my suspicions on why BAT was chosen because the first collateral, which has got to do with voting,” Quigley said. “I haven’t seen tons of communication among them [BAT fans] saying, ‘Wow, we actually want this.’ But someone goes to use it. And there’ll probably be some kind of arbitrage.”
He added that, although vote is low and possibly skewed by niche interests, the DAI DeFi system is more decentralized and accessible than stablecoin predecessors that relied on just a couple of companies, like Tether.
Theoretically, anyone with internet access and software engineering skills could build an interface to access these protocols. This possibility, which thus far has yet to be realized to any measurable scale beyond the interfaces funded by ecosystem creators themselves, is what Andreessen Horowitz partner Chris Dixon said inspired his firm to take a position in both Compound and Coinbase.
“Compound may be a lending protocol that’s hospitable anyone within the world, that disintermediates banks and allows anyone to earn interest on their money,” Dixon said.
To be fair, MyCrypto CEO Taylor Monahan, an MKR holder, said MakerDAO’s loan system does a “pretty good” job informing users about the risks inherent to those loans while still scaling this experiment.
“When you think that about what’s been accomplished it’s super exciting. You can’t undermine that,” she said, pertaining to the sheer number of loans issued through the DeFi ecosystem.
Compound’s website tallies a minimum of 1,278 borrowers and MakerScan lists quite 1,960 DAI loans created thus far in November alone (out of 148,173 loans over the past 12 months). These projects also actively encourage user participation through public polls and open-source code.
“To the purpose about participation, that’s a general condition that must develop because the protocol develops,” Becker said, adding “up to 100 people and organizations” now dial in to the open governance calls, which only attracted six or seven people a year ago.
Yet there are but a couple of dozen people, via the above-listed ventures, who currently dominate both liquidity and voting power across the leading DeFi platforms. Monahan, for instance , said she has yet to vote because she said the method remains too cumbersome to be a priority for her. Ethereum community veterans like Monahan and developer Georgios Konstantopoulos have also expressed concern that the updated language wont to market these automated services as “vaults” and “savings” misrepresents their current level of security.
Meanwhile, Nadia Alvarez, MakerDAO’s head of business development in Latin America , is busy performing on educational initiatives to gather user feedback from marginalized user groups.
“We want to develop their curiosity round the blockchain and other financial options they need ,” she said, speaking of Brazilian students in one such program. “It’s a fantastic opportunity to make new solutions thinking of the particular needs of individuals in several countries.”
Argentinian ex-pat María Paula Fernandez, an ethereum community veteran who holds her savings in DAI and uses DeFi projects to buy her daily expenses, said the risky collateralized loans seem to her sort of a financial crisis waiting to happen.
Although she is also bullish on the potential of DeFi, Fernandez tweeted within the lead-up to multi-collateral DAI that she hopes the community stays mindful of “not creating a bubble of over-collateralization and marketing.”
MakerDAO’s head of smart contracts, Mariano Conti, based in inflation-riddled Argentina, also relies on DAI for everyday expenses.
“I put my money where my mouth is. i have been getting paid exclusively in Sai for over two years, and that i can’t await my next paycheck to be in (Multi-Collateral) Dai,” he said via email. “I hope Dai continues to be the backbone of DeFi on ethereum.”
The DeFi user base is diversifying far faster than the community of influential participants – that’s , those that vote, function market makers and build products that tap into the open protocols.
The investors behind DeFi projects just like the Maker Foundation, Uniswap and Compound are all heavily invested within the tokens supported by these systems. for instance , the general public vote to feature MKR support to Compound was weighted to favor voters who had earned the foremost interest using the protocol. So it favored Compound’s investors that include institutional MKR holders, namely Polychain Capital and a16z. (This isn’t unique to DeFi ecosystems; it’s a general dilemma presented by proof-of-stake systems.)
The Ethereum Foundation’s founder himself, Buterin, also owns MKR additionally to tokens from two projects he advised, Augur and OmiseGo. All of the above are already supported by Compound or are into account for multi-collateral DAI. Becker said there’s no finite deadline that assets are going to be added to DAI’s collateral system, or when.
“That’s really up to Maker governance, that’s MKR token holders, to make a decision going forward,” he said.
To their credit, Becker said the inspiration is currently working with Ernst & Young to restructure the non-profit’s board, which doesn’t include the above-listed MKR holders. Thousands of individuals who own small amounts of MKR can, and do, sway polls by participating in governance calls, forum debates, and signaling their commitment by casting votes with smaller amounts of MKR.
“It ranges from leverage traders all the way through to basic transactional users also , folks that want to pay freelancers or put their DAI onto various wallets and use it for transaction purposes,” Becker said. “In doing that [voting on new collateral types] it provides the required robustness to the protocol as an entire .”