Expectations that Maker’s (MKR) price will take over Terra’s domination on DeFi saw the token rising over 50% in the last few hours.
The DeFi token, which powers the DAI stablecoin, appears to be benefiting from the fall of Terra’s UST.
Due to a more robust risk framework for managing stability, MakerDAO has shown to be more stable than Terra. The first risk team, a template model team, the Maker Foundation’s internal risk team, is in charge of its decentralized risk management.
Maker May Be Leading DeFi As Terra Plummets
Maker’s recent price increase implies that investors prefer DAI’s safety to UST’s risk of holding. Investors can mint the collateralized stablecoin DAI using Maker, an Ethereum-based DeFi protocol. It allows users to mint DAI stablecoins using a variety of crypto assets such as Bitcoin, Ethereum, or liquidity positions on other protocols such as Curve.
Terra’s LUNA has dropped more than 90% in the last 24 hours after the LFG plans to raise $1 billion in funding for the UST stablecoin failed, while Maker’s (MKR) price has briefly surpassed $2000. Since then, the price has receded and is now trading 30% higher at roughly $1500. The increase appears to be the result of Terra’s investors buying Maker as the price of LUNA falls below $1.
Moreover, the de-peg of the UST stablecoin has propelled DAI to the fourth-largest stablecoin by market capitalization. Maker’s DAI stablecoin had previously lost a large amount of market share to UST stablecoin. Do Kwon, Terra’s founder, also claimed that the rising popularity of UST has killed the DAI stablecoin.
Maker’s stability is protected via its governance and decentralized risk management, which also supports its stablecoin DAI.
How DAI Keeps the Dollar Peg During Volatility
Maker is one of the first Defi projects. It allows users to invest in assets like Bitcoin while benefiting from the DAI loan. Positions that fall below collateralization thresholds are liquidated using the DeFi token. As a result, DAI may maintain its peg to the US dollar even during instances of high volatility.
Unlike UST, DAI does not use an algorithm to maintain its peg, instead, it uses a collateralized reserve. Given the shady past of algorithmic stablecoins, this could be a better option.
