The Role of Ether in Multi-Collateral DAI

Governance of MakerDAO needs to consider special role Ether has as collateral for DAI

1 DAI = $2–$3 of ETH

DAI tends to be over-collateralized by 200% to 300%. That means that for every DAI that has been generated, there is at least 2$–3$ worth of ETH locked up in a CDP. This is a very strong lockup-force, as demand in DAI turns into 2–3x demand for ETH-in-CDP lockup.

DAI Collateralization Ratio:

Leveraged Ether Lockup

We can clearly see these effects take place. Lockup of Ether is almost always at an all-time high. This is partly product of the decreasing ETH price, which requires more Ether to be locked-up, in order to keep DAI collateralized.

Ether lockup:

There is currently over 1.6% of all Ether inside of MakerDAO CDPs, which represents perhaps the largest single pool of Ether currently in Ethereum.

This is all a result for the demand for DAI, which constantly seems to be growing.

Supply of DAI:

1.6% of Ether is a ton of Ether. Removing 1.6% of all Ether from the secondary markets, and putting it into MakerDAO, theoretically, helps prop up the value of Ether. All Ether locked in use-cases like MakerDAO, is Ether that cannot move to the secondary market. Therefore MakerDAO, in part, ensures Ether’s value by keeping it off secondary markets.

Using DAI is Using 2–3x ETH

Because the 200%–300% collateralization of DAI, when you transact 1 DAI between two people, it’s as if you are transacting $2–$3 of Ether. Because there is $2–$3 worth of Ether locked in the purpose of creating that 1 DAI. For two people to be able to transact in a stable currency, it requires 2–3x the value of Ether to do so.

Using Dai is using Ether.

Dai is Ether in it’s stable form. It’s a Meta-Ether. DAI is stable transaction layer, on-top of Ether.