Dai Lost Leading Position Among Non-Tether Stablecoins After Market Meltdown

Ganesh Swami dives into stablecoin transactions in the Flippening Series Part 3. Also, MakerDAO's roadmap for total decentralization, and Keep's $7.7m round.

Hello Defiers! Here’s what’s happening in DeFi:

  • Dai has lost its leading position among non-Tether stablecoins after last month’s market meltdown, Covalent’s Ganesh Swami writes in the Flippening Series, Part 3
  • MakerDAO founder Rune Christensen just shared details on how the Dai issuer plans to increasingly decentralize governance
  • Keep Protocol raises $7.7 million to bring bitcoin to DeFi
  • Coinbase invests $1.1 million in Uniswap and PoolTogether

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The Flippening – Part 3

Do Pure, Trustless Stablecoins Stand a Chance?

By Ganesh Swami, Co-founder of Covalent.

Exclusive for The Defiant


In part 2 of my op-ed series, we used data to show how Ethereum is starting to mature beyond simple token transfers. This is the Flippening Ethereum fans have been waiting for – smart contract executions taking over simple token transfers.

In part 3 of my op-ed, we will once again use data to study the traction of pure, trustless stablecoins over fiat-backed stablecoins. This is another kind of flippening that matters – decentralized solutions holding their ground against the onslaught of centralized, authoritarian alternatives.

Why Stablecoins?

Cryptocurrencies suffer from high volatility – it’s not uncommon to see the price of ETH or Bitcoin swing by 10% in a single day. These swings make them impractical for everyday usage.

Enter Stablecoins.

Stablecoins are a special breed: cryptocurrencies that peg their price to an external reference price, usually a fiat currency like the US dollar or a commodity like gold. Stablecoins maintain their peg either via collateralization or through algorithmic means.

Let’s focus on collateralized stablecoins. A stablecoin maintains its peg either by collateralizing with:

  • Fiat – maintaining a fiat reserve like the US dollar to issue a corresponding number of cryptocoins. Such reserves are maintained by independent custodians and are regularly audited to make sure they are compliant.
  • Another cryptocurrency – usually over-collateralized as the backing currency is prone to high volatility. It’s not uncommon to see collateralization ratios of 150% or higher.

The Philosophical Purity Test

A trustless, uncensorable cryptocurrency-backed stablecoin is pure. Anybody, anywhere can verify the collateral without having to trust an outside centralized authority. With a fiat-backed stablecoin, you are back to square one – trusting auditors, bank statements and regulated custodians. Everything we’ve wanted to avoid.

Besides that, fiat-backed stablecoins also come with regulatory and censorship risk. For example, the user agreement for USDC can freeze funds, terminate accounts and even report your account to the authorities. Who wants that?

The Analysis Methodology

Crypto-native enthusiasts are rooting for a decentralized future. But what does the data say?

We pit fiat-backed stablecoins like Tether (USDT), USDC, TrueUSD, Paxos against a pure, trustless stablecoin like DAI/SAI. We use Covalent’s data to calculate a simple metric: monthly transfer volumes of each stablecoin on the Ethereum blockchain. We’ve limited our analysis window to the last 15 months, from Jan 1, 2019 to March 31, 2020.

Some caveats about our methodology:

  • Maker recently added USDC as a collateral type for DAI. It’s only been two weeks since they did that – so the effects aren’t visible on charts with granularity in months.
  • We combine the volumes of Single Collateral DAI as well as Multi Collateral DAI because our assumption is that most holders of SAI have migrated to DAI. Additionally, it’s the only crypto-backed stablecoin under consideration.

The Analysis


For the first analysis, we chart the market shares of the stablecoins under consideration. Remember, our analysis is to test the flippening hypothesis and not absolute growth rates or volumes (BTW, the overall market for stablecoins have been growing considerably.) Hence the proportional area chart.

Some observations:

  • Tether absolutely dominates
  • It’s not clear from this visualization whether SAI/DAI pair is actually able to capture another stablecoin’s market share

In our second chart, we use a special kind of chart known as a bump chart to not only understand market shares, but also the rankings within a particular time frame.

Some observations from this chart:

  1. In 2019, from April to September, there was a race between Paxos and SAI/DAI. This is the flippening we want to see!
  2. From October to January 2020, the rankings were stable.
  3. In February 2020, DAI/SAI entered the ring as a challenger for the second position.
  4. In March 2020, with Black Thursday and the over market meltdown, DAI/SAI is pushed back to the third position. It’s not clear how this story will play out in the future.

Conclusions: In a stable market like 2019, trustless crypto-backed stablecoins see adoption and are attractive. When markets go haywire like the way they did in March 2020, users retreat to a more centralized alternative.

In fact, Maker has added USDC as a new collateral type to add stability to DAI and some might consider this as admitting to the inadequacies of pure crypto-backed stablecoins during times of market volatility. The question a lot of users have – Why not just use USDC and not bother with DAI at all?

In part 4, we take a look at another kind of flippening that matters. Stay tuned.


MakerDAO Lays Out Roadmap for a Self-Governed System

MakerDAO co-founder Rune Christensen laid out plans for the decentralized lender to become increasingly governed by its community, until the point where the Foundation will be completely redundant and able to dissolve itself.

Christensen announced the roadmap, consisting of three pillars, in today’s governance call. Right before getting on this call, he was on an interview with me and told me the details. I’ll give you the broad brush strokes here, but you’ll get all the details when I publish the interview next week.

Three Pillars for a self-sustaining MakerDAO:

Elected Paid Contributors: These individuals are elected by the governance system and receive payment from the protocol in exchange for performing specific work. Payment comes from stability fees, and the work could range from smart contract engineers to marketers.

Maker Improvement Proposals: Formalization of the process that exists today, where the Maker community can create proposals that are then voted on, so that it’s more transparent and a larger number of people are encouraged to participate.

Vote Delegates: The ability for MKR holders to delegate their vote on someone they trust can represent them. There’s more MKR in the hands of small holders than whales but the current system makes it hard for the smaller holders to organize.

Keep Raises $7.7 Million to Build Bitcoin/Ethereum Bridge

Keep Project raised $7.7 million to build Bitcoin/Ethereum bridge tBTC. Paradigm Capital led the round, while Fenbushi Capital, Collaborative Fund and others also participated, by buying the Keep token. Andreessen Horowitz, Polychain Capital and Draper Associates were involved in the project’s previous 2018 round.


Image source: tBTC website

Keep is building tBTC, an ERC20 token that’s backed by Bitcoin. tBTC would allow Bitcoin holders to gain access to Ethereum based applications such as privacy-preserving Tornado Cash, decentralized exchanges like Uniswap, and open lending protocols like Compound Finance and Aave. For Ethereum it would mean a larger user base and more liquidity, as Bitcoin holders would now be able to interact with its applications. For DeFi, it can also mean more diversified collateral options.

tBTC is one of many projects building a Bitcoin/Ethereum bridge. Here’s an overview of tBTC and other top projects:

tBTC is a platform which stores BTC private keys without needing to trust third-parties, and exchanges them for tBTC, which is a token built on Ethereum’s ERC20 standard, which means it can be used on the Ethereum chain, while keeping the value of Bitcoin. ew secrets are more useful and valuable than bitcoin private keys.

wBTC, or Wrapped Bitcoin, is also an ERC20 token backed by Bitcon, and it’s already live and trading. The drawback is that it depends on BitGo to store Bitcoin, and only approved parties can make the exchange. That means it’s not a trustless, decentralized solution, and the token has to be bought in the secondary market; it can’t be exchanged directly for BTC.

RenVM is a decentralized network which plans to enable cross-chain transactions. Rather than offering a token, it executes whatever actions Bitcoin holders would want to do on Ethereum, without them even needing an Ethereum wallet, and vice versa. Read my interview with the CTO here.

Liquality’s Atomic Swap Interface allows users to swap BTC, DAI, and ETH directly on their Ledger or Metamask wallets, without needing to go through an exchange.

Coinbase Invests $1.1 Million in Uniswap and PoolTogether

Coinbase, through its USDC Bootstrap Fund, provided $1 million of liquidity to Uniswap’s USDC/ETH pool, and $100K USDC as a pool sponsor on PoolTogether, to increase rewards for lottery players who deposit USDC. In September, Coinbase added $1 million in USDC to Compound and $1 million USDC to dYdX.

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The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money.

About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.