DAI-namic Shift: MakerDAO’s stablecoin supply drops 50%, thanks to…

• DAI’s supply has fallen by 50% from the 2022 peak.
• MKR suffers increased distribution causing its price to plummet. 

Due to the decline in the prices of its underlying assets, the total supply of DAI, MakerDAO’s decentralized stablecoin, has since dropped by 50% from its early 2022 peak, data from Delphi Digital revealed. 

The total $DAI supply has dropped 50% from it’s peak in early 2022. pic.twitter.com/4qTaPDvCeN

— Delphi Digital (@Delphi_Digital) March 10, 2023

This contraction in DAI supply is due to the DeFi protocol’s Collateralized Debt Position (CDP) model. MakerDAO CDP allows users to generate the DAI stablecoin by collateralizing other cryptocurrencies, such as Ethereum.

Users deposit their crypto assets as collateral in a smart contract. In return, they receive DAI, which can be used for transactions or stored as a hedge against market volatility.

Read Maker [MKR] Price Prediction 2023-24

The MakerDAO CDP model maintains DAI stablecoin’s value at $1 through interest rate incentives. The automatic system increases or decreases interest rates to encourage the creation or burning of DAI.

This mechanism effectively manages the decrease in DAI supply due to crypto price drops, keeping it close to its target price.

In addition to a contraction in the supply of DAI, MakerDAO’s revenue from transaction fees has returned to its May 2022 levels. According to data from Maker Burn, the protocol’s fee income (annualized) stood at 47.39 million DAI at press time. 

Source: Maker Burn

Lido remains an obstacle

On 2 January, the total value of assets locked (TVL) on the leading liquid ETH staking platform Lido Finance [LDO] exceeded that of MakerDAO to displace it as the DeFi protocol with the most TVL. 

Lido’s dominance in the DeFi realm of the crypto ecosystem has grown to 19.65%, according to data from DefiLlama.

This marks a significant increase in control for the protocol over the past three months, signaling its continued ascent in the world of decentralized finance despite a consistent drop in the annual percentage rate (APR) offered. 

As the Shanghai Upgrade approaches, there has been a surge in Ether (ETH) staking on Lido, resulting in a rally of its TVL and further widening the gap between Lido and MakerDAO.

As of this writing, MakerDAO’s TVL was spotted at $7.21 billion, in second place behind Lido’s $8.6 billion. 

Source: DefiLlama

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MKR in the last week

Exchanging hands at $641.47 at press time, MKR’s value declined by almost 30% in the last 30 days, data from CoinMarketCap revealed. 

On a daily chart, there has been a severe decline in token accumulation since 7 March.

This has pushed MKR’s Relative Strength Index (RSI) and Money Flow Index (MFI) toward the oversold region. At press time, these indicators were both spotted at 36, signaling a wane in buying pressure and increased token sell-offs. 

Lastly, the alt’s On-balance volume was in a downtrend at 105.275k and has fallen by 44% since 7 March.

When an asset’s OBV declines, the volume of trading activity for that cryptocurrency decreases over time, often precipitating a price drawdown.

Source: MKR/USDT on TradingView