The above three charts visualize the addresses most often listed as the recipient in MKR on-chain token transfers for the three dates mentioned (taking the days around 3/18 to see if any continuous patterns occur).

One aspect that stands out immediately is a more diversified distribution of addresses on 19/03/18. Diving deeper into each party that transacted — we can confirm our “whale” hypothesis (#2 above) — by discovering that the following non-contract addresses were responsible for the largest portion of token volume transferred on 19/03/18:

While it is impossible to know exactly who these addresses represent — our initial classification algorithms offer a heuristic as to what type of entity they could be representing.

This evidence gives us a plausible explanation for the 19/03/18 increase in mean and max transfer amount — large “whale” addresses, most probably owned by the token team members themselves, making large MKR transactions.

We still don’t have an answer for the 18/03/18 spike in the number of on-chain transfers.

Since the 18/03/18 distribution of addresses is more concentrated, it is useful to look at which ones are most frequently sent to. The largest (in terms of frequency) is a helper ‘bot’ address (0x0016BD4cb70Bd98CA07A341DA66450b5d22A55aa) that interacts with the primary Maker smart-contracts. The second and third most frequent addresses on average were the smart-contracts themselves.

To be specific — these two Maker smart-contracts are interchangeably most often the recipients of MKR token transfers in all three days (shown with contract address and name):

● 0x14fbca95be7e99c15cc2996c6c9d841e54b79425 ( MatchingMarket )

● 0x69076e44a9c70a67d5b79d95795aba299083c275 ( GemPit )

The MatchingMarket contract provides liquidity to users wanting to trade in and out of MKR — especially from the decentralized exchange OasisDex. Meanwhile, the GemPit contract serves as the contract that effectively burns the MKR used to pay for stability fees.

Exploring the address distributions of the addresses most often listed as the sender in MKR on-chain token transfers shows a similar pattern to the charts above.

Since the largest frequency (and volume) of token transfers occurred among these specific Maker smart contracts, it makes sense to test hypothesis # 1 and check the status of the Maker-Dai ecosystem itself to see if any internal phenomena are occurring.

Mechanisms that keep Dai stable

It is useful to get a little bit of context on the Maker-Dai stablecoin system as it has a lot of moving parts. For the purposes of this piece, we will take a slightly simplistic view of the ecosystem in order to cover the major components that we will observe in action.

The Dai stablecoin system consists of two different tokens:

Dai : The stable coin that is soft-pegged to the US Dollar

: The stable coin that is soft-pegged to the US Dollar MKR: A utility token used for payment of fees, recapitalization of resources, and governance of the Maker-Dai system

Collateralized Debt Positions (CDPs)

The fundamental construct at the heart of the Maker-Dai system are special smart contracts called Collateralized Debt Positions (or CDP’s for short).

CDPs receive ether in a pooled form (called PETH) from users and in exchange give the user Dai tokens.

Icons made by Freepik from Flaticon

The CDP then stores this PETH as collateral for the Dai that has been issued. What this means is that the CDP essentially treats the Dai issued as a loan — creating a debt with the PETH given by the user taken as collateral, should the Dai not be returned. This PETH collateral is locked out of the user’s access until the outstanding debt (the issued Dai) is paid back.

When the user wants to get their collateral back — they pay down the debt by sending back the borrowed Dai and also pay interest on their loan in the form of a ‘stability fee’. This fee can only be paid in the MKR token.

Why does there need to be this system of collateral and stability fees in order to maintain a stable coin? Well, in the situation above, the Dai that is issued is essentially tied to a multiple of the value of Ether that was put up as collateral for it.

To keep the Dai price stable in relation to USD, when the price of the collateral (USD value of ETH) decreases, there has to be a larger amount of collateral taken per Dai token issued and vice versa when the price of the underlying collateral decreases.

Dealing with Dai price volatility

Dai has a concept known as ‘Target Price’. It represents what the price of Dai “should” strive to reach at any given time and is used to calculate the amount of collateral needed per Dai issued for a CDP. Since Dai is pegged to USD at a 1:1 rate, the Target Price (in USD) starts at 1.

While the target price is set by the Maker system, the market price of Dai (what it is actually traded for) is decided by the market.

At 17:19 UTC on 18/03/18, the market price of DAI was driven to a local maxima of $1.11. Over the course of 18/03/18 we see it dramatically dip to $0.96 before stabilizing again near $1.00 on 19/03/18.