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DAI Has Been Struggling to Maintain Its $1 Peg, but the MakerDAO Community Believes It Will Soon Be Crypto’s ‘Default’ Stablecoin

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Stability has become a holy grail for the crypto market, and right now, one of the biggest stablecoins is MakerDAO‘s DAI. Launched in December 2017 as an ERC-20 token, it’s pegged 1:1 with the United States dollar, with its peg being maintained via over-collateralization with ether (ETH). In other words, users receive the equivalent of $1 in DAI by depositing more than $1 in ETH, and they can later reclaim their collateral by repaying the DAI they’ve received plus a “stability fee” in MKR, MakerDAO’s other (nonstablecoin) token. By charging users this additional fee, the MakerDAO system theoretically prevents the value of DAI from dropping below $1, since the fee makes it expensive to mint more DAI tokens.

However, as elegant as this system is in theory, it recently hasn’t been working quite as well as intended. DAI has been below $1 for much of 2019 and has even dropped under $0.95 on a couple of occasions. MakerDAO users have therefore voted to increase the stability fee on five separate occasions this year, with the most recent vote on April 11 deciding that the fee will rise to 11.5% per year.

But even with this hike, the MakerDAO community isn’t sure that the value of DAI won’t keep fluctuating until more substantial and longer-term solutions are implemented. Despite the infighting that has occurred recently regarding MakerDAO governance and transparency, it is nonetheless hopeful that such solutions will be found and agreed upon, and that DAI will become the “default stablecoin” for the wider cryptocurrency community.

People are buying DAI to go long on ETH

As the chart below illustrates, DAI hasn’t quite stuck rigidly to its $1 pegging. For its entire (albeit short) life, its value has fluctuated consistently around the $1 level, and since the end of March, it has stubbornly hung below its intended price.

And as Steven Becker, the president and chief operating officer of MakerDAO, told Cointelegraph, this variation is largely the product of one of the most basic economic forces: supply and demand.

“The price has hovered below $1 simply because the supply has outpaced the demand for Dai. As a result, the MakerDAO community has been increasing the Stability Fee in order to incentivize CDP owners to close out their positions and thus reduce the supply.”

For those who aren’t familiar with the inner workings of MakerDAO, “CDP” stands for collateralized debt position. This is what MakerDAO users open whenever they deposit some ETH — the collateral — and receive DAI tokens in return. As the holder of CDPs, they’re subject to a percentage-based stability fee, which accumulates each year. And because it accumulates each year, it incentivizes holders to return their DAI, thereby keeping supply low and the price stable.

Of course, matters are complicated by the use of ETH as collateral, which means that MakerDAO users are effectively going long on ETH when they open a CDP. What this means is that CDP owners can borrow DAI in order to purchase additional ETH (additional to the ETH they used to open the CDP), and if ether increases in price, more users will want to do this, since they will come out ahead — in comparison with simply buying ether with, say, U.S. dollars.

And in fact, DAI’s failure to reach its peg has been exacerbated not only by the gradual improvement in ether’s price since late January, but also by the post-April 2 bull market, when ETH (among other cryptos) increased by over 16% in a single day. Because ETH has been rising so spectacularly as of late, more traders have wanted to open CDP positions and use DAI to buy more of the other cryptocurrency (i.e., ETH). At the same time, because the value of DAI sticks — more or less — within the $0.98-$1.02 range, demand for DAI in and of itself hasn’t risen. And as Lawson Baker, head of special projects at Tokensoft and a participant in recent MakerDAO community calls, explained, this has created a supply-demand imbalance.

“Over the past few months, DAI has been struggling to maintain its peg to the US dollar given demand for MakerDAO loans exceeds the demand for the DAI created by when those loans are issued.”

So, in order to address this imbalance and make its stablecoin more, well, stable, MakerDAO has voted to increase the stability fee on five separate occasions this year. In theory, this will make it less profitable for users to open CDPs. That said, as of writing, DAI is still valued at $0.97, while the community is already voting on yet another fee rise. At the same time, any further spikes in the price of ETH might continue to make such increases irrelevant.

Longer-term solutions

And given this constant to-and-fro, other figures within the stablecoin arena are questioning the use of a stability fee as a pegging mechanism. “The way I see it, trying to forcefully stabilize a coin and putting users in the line of fire by paying the ‘stability fee’ is a strange practice,” argues Jeremy Dahan, the founder and CEO of DiamDEXX, a company that produces the diamond-backed stablecoin DIAM.

Unsurprisingly, Dahan claims that pegging the coin to a stable asset would be a more reliable mechanism. But needless to say, this isn’t really an option for MakerDAO, so the question remains as to what can be achieved in the longer term to ensure the constancy of the MakerDAO system. Indeed, MakerDAO admitted in a blog post from April 11 that previous hikes have been ineffective, implying that even the latest one may not be enough as it is:

“In February, the Stability Fee was increased twice, each time by 0.5%. In March, the Fee was raised by an additional 2%, and then by 4% two weeks later. The impact of these combined increases was insufficient to restore the peg, indicating that the appropriate rate is still higher.”

Solutions that go beyond a simple fee increase remain controversial, yet the MakerDAO community appears to be gravitating toward a multi-pronged attack that combines fee adjustment with some kind of means for boosting DAI demand and for limiting DAI supply.

“The are four ways to fix this problem,” Baker explained. “(1) increase the interest rate on a MakerDAO loan, (2) find ways to increase DAI usage and as a result demand for DAI, (3) limit the supply of DAI that can be created (i.e. this functions as a MakerDAO debt ceiling for loans akin to the U.S. government’s debt ceiling, or (4) a combination of all three.”

Even though he doesn’t offer specific ways of boosting DAI usage, Baker nonetheless affirms that “a combination of all three is the best long term approach.” Such a combination may indeed have the best chance of gaining wider community support, something that will be vital if MakerDAO is to solve its stability issues, since Becker told Cointelegraph that the MakerDAO Foundation can’t itself do such things as lower the debt ceiling.

“The Maker Foundation cannot make any decisions related to the debt ceiling. That responsibility lies with MKR holders. The MakerDAO community could consider any solution that follows the principles of Decentralized Scientific Governance (If ideas are supported by the appropriate models and data, they are discussed by the MakerDAO community in a variety of social media platforms, including the weekly governance call.”

Transparency and multi-collateral DAI

There is, however, one more problem that complicates the stability issue and that might distract attention away from an agreement on a solution — at least, in the short and medium term. This is the age-old problem of governance. And in MakerDAO’s case, such problems revolve largely around the anonymity of its board, which consists of nine unknown members and which is being increasingly criticized by community members for undermining the transparency of MakerDAO’s governance.

In a fractious April 9 community call, much of the discussion was consumed by this problem, with Chris Padovano — a former legal counsel for the MakerDAO Foundation — continually pushing for MakerDAO to publish its bylaws and make clear how its governance structure operates. More recently, a leaked letter asserted that five members of the board were pressured to resign by MakerDAO CEO Rune Christensen, who (according to an attorney) had claimed that these five had “engaged in a ‘conspiracy’ and breached their fiduciary duties as directors.”

Despite such tensions, MakerDAO defends the anonymity of its board, which decides how development funds are used and which also holds around 27% of MKR governance tokens (which are needed to vote on governance issues). “The anonymity of the MEGF board is preserved due to security concerns,” Becker said. “Currently, the board members are also the signatories of the Foundation’s multi-sig account.”

However, while MakerDAO is still defending this anonymous setup, it is planning to introduce greater transparency into how the board operates, with a recent blog post revealing that it will be inviting input over the coming weeks from community members on an “ideal” board structure. As Becker explained, “The Maker Foundation is pursuing a formal and public board structure,” alongside a separate custody solution for the foundation’s multi-sig wallet, which holds development funds.

The renovation of its governance structure will help MakerDAO to arrive at more effective solutions. However, more importantly for MakerDAO’s stability issues, the MakerDAO Foundation also plans to shift from a collateral system based purely on ETH to one that involves various cryptocurrencies. “Currently, the Maker Foundation is intent on shipping Multi-Collateral Dai (MCD) later this year,” Becker affirmed. “MCD will allow new collateral types in addition to improved stability mechanisms.”

The introduction of multi-collateral DAI should enable the stablecoin to avoid becoming too reliant on ETH for maintaining its peg, even if it could be argued that a crypto market that rises (or falls) as a whole will expose DAI to the same risks that it faces now. But according to Becker, its introduction will ultimately help MakerDAO and its community achieve its “primary goal” of ensuring “the integrity, stability, and growth of Dai, as we move toward our objective of leveling the economic playing field for people around the globe.”

And while it’s certainly true that there’s some division on how exactly to solve DAI’s stability woes, the community is generally confident that DAI will only grow in stability and importance in the coming months. “Over the next year, DAI and DAI-derivatives will become the default stablecoin for crypto-native projects,” Baker predicted. “We are already seeing this with DAI adoption by Augur in their upcoming V2 fork and other projects.”

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Binance’s BNB Token Hits All-Time High in Bitcoin Value

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Binance Coin (BNB), the token issued via the arena’s greatest cryptocurrency trade via industry quantity Binance, has prolonged its contemporary positive aspects to set a brand new all-time prime in bitcoin-denominated price.

At press time, BNB is buying and selling at 0.002619 BTC ($9.60) however in the past reached 0.002688 at 10:00 UTC Monday – the cryptocurrency’s easiest worth in its complete one and part 12 months historical past, in keeping with information from Binance. 

Binance first indexed BNB for buying and selling on July 14, 2017, and the token has accomplished a just about 9,600 % go back on funding from its December 2017 initial coin offering (ICO) worth of $0.10.

At the similar time, BNB nonetheless has a long way to move earlier than drawing near it’s all-time prime in USD price. Current figures constitute a decline of 58 % from BNB’s USD prime of $22.48 accomplished on Jan. 12, 2018, information from OnchainFX additional finds.

BNB’s BTC-tied prime got here after a duration of sturdy efficiency that performed out during the last a number of weeks.

As may also be observed within the desk under, BNB has considerably outperformed the marketplace chief and international’s greatest cryptocurrency bitcoin during the last 90-days, together with a 35 % building up previously seven days by myself when bitcoin rose simply five %.

BNB’s contemporary enlargement has catapulted it to transform the arena’s 10th greatest cryptocurrency via marketplace capitalization, which now registers $1.33 billion, in keeping with information from Coinmarketcap.com.

While BNB could also be the one well known cryptocurrency to hit a brand new report of types, it has no longer been the most efficient performer.

Data from OnchainFX finds 3 cryptocurrencies have outshined BNB previously seven days together with ARK, Dentacoin, and Theta Token who’ve published positive aspects of 35 %, 43 % and 43 %, respectively, towards the United States greenback.

Disclosure: The writer holds BTC, AST, REQ, OMG, FUEL, ZIL, 1st and AMP on the time of writing.

Binance phone symbol by means of Shutterstock

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New Proposed ETF Would Mix Bitcoin Futures With Sovereign Debt

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A brand new proposed exchange-traded fund (ETF) would spend money on bitcoin futures – even though handiest as a part of a bigger set of extra conservative investments.

Reality Shares ETF Trust, a department of Blockforce Capital, which already introduced one ETF with blockchain products, filed a Form N1-A with the U.S. Securities and Exchange Commission (SEC) Monday in partnership with NYSE Arca, taking a look to release the Reality Shares Blockforce Global Currency Strategy ETF.

If authorized, the fund would spend money on a portfolio which incorporates “high-quality, short-term sovereign debt instruments listed for trading on U.S. exchanges and denominated in U.S. dollar, euro, British pounds sterling, Japanese yen and Swiss francs,” in addition to bitcoin futures, cash marketplace mutual price range and/or different coins equivalents, in step with the submitting.

The fund would spend money on cash-settled bitcoin futures contracts, moderately than bodily settled. In different phrases, when the contract expires, the investor would obtain the money an identical of its worth, moderately than precise bitcoins. According to the submitting, “the fund will not invest directly in bitcoin.”

The proposal explains:

“The Adviser initially constructs the Fund’s portfolio by investing approximately (i) an equal-weight of 15 [percent] of the Fund’s net assets in Fixed Income Securities denominated in each Fiat Significant Global Currency; (ii) 15 [percent] of the Fund’s net assets representing notional exposure in Bitcoin Futures and (iii) 10 [percent] of the Fund’s net assets in Money Market Instruments for margin and/or cash management purposes, each as measured at the time of purchase (the ‘Target Portfolio’).”

Reality Shares’ submitting is going on so as to add that “the Adviser seeks to reallocate the Fund’s assets approximately to the Target Portfolio on the business day following the date that one or more of the Significant Global Currencies moves by more than 20 [percent] up or down from its original 15 [percent] portfolio equal-weight, calculated as a percentage of the Fund’s net assets.”

Initially, Reality Shares plans to spend money on the bitcoin futures presented via the main Chicago futures exchanges, Cboe and CME, even though it could search for different bitcoin futures merchandise sooner or later.

Bitcoin ETFs

Reality Shares’ proposal comes at the heels of 2 bitcoin-specific ETF filings made via Bitwise Asset Management and VanEck/SolidX last month. While Bitwise’s proposal used to be additionally filed via NYSE Arca, VanEck and SolidX are running with Cboe BZX Exchange.

The VanEck/SolidX proposal is famously just like an previous proposal that many was hoping will be the first bitcoin ETF authorized. However, the firms pulled the previous version after the extended U.S. government shutdown, pronouncing on the time that they had been not able to continue discussions about the proposal with the SEC.

Both of those bitcoin ETFs range from Monday’s submitting in that they don’t come with sovereign debt tools.

The SEC has now not but revealed Reality Shares’ rule trade proposal on its web page, indicating that it has now not but begun inspecting the product. Once the proposal is revealed within the Federal Register, the SEC could have at maximum 240 days to resolve whether or not to approve or reject the rule of thumb trade proposal.

T-bill image by the use of JHerbstman / Wikimedia Commons

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Central Bank of Laos Issues Warning Against Using Cryptocurrency

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The central bank of Laos has warned the public against the use, purchase or sale of digital currencies, local news outlet Vientiane Times reported on May 21.

The Bank of the Lao PDR has issued a warning to financial market participants and the public against cryptocurrency transactions as they are considered illegal in the country. The bank previously banned financial institutions from conducting any operations with cryptocurrencies, as well as making investments in such an asset.

The bank is purportedly concerned about the anonymity of the sender and receiver in a cryptocurrency transaction, which it worries increases the risk of digital assets’ use in money laundering. A source familiar with the matter told Vientiane Times that authorities do not have a relevant security system to protect cryptocurrency owners.

While some countries like, Canada, Malta and Switzerland have embraced the new asset class to varying degrees, officials around the globe are still expressing skepticism toward crypto, while some hardliners call for outright bans.

In the United States, where the legal status of crypto can vary state-to-state, California Congressman Brad Sherman recently called for a full ban on cryptocurrencies. Sherman claimed that crypto presents a threat to the power of the U.S. dollar to affect world economic developments.

In April, Cointelegraph reported that the Indian government was considering a complete ban of cryptocurrencies under the Prevention of Money Laundering Act since it could purportedly be used for money laundering. The Ministry of Corporate Affairs reportedly stated that cryptocurrencies are used in fraudulent schemes to “defraud gullible investors”.

That same month, news broke that Pakistan — which banned cryptocurrency trading last April — is implementing new cryptocurrency regulations in an effort to improve its track record in fighting financial crime. The move was reportedly in part a reaction to demands from international monitoring body the Finance Action Task Force, which has repeatedly voiced concerns about cryptocurrencies’ role in terrorist financing.

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Founder And CEO Of China’s Blockchain-Based Uber, Kuaidi Dache, Shows Concerns Of EOS Use

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Founder-and-CEO-of-Kauidi-Dache-Shows-Concern-About-Use-of-EOS

Founder-and-CEO-of-Kauidi-Dache-Shows-Concern-About-Use-of-EOS

Founder And CEO Of Kauidi Dache Shows Concern About Use Of EOS

  • CEO of Chinese tax hailing app criticizes the lack of decentralization in EOS.
  • The EOS blockchain network focuses on scalability above decentralization, which has earned it many critics.

Everyone has an opinion of cryptocurrency, whether it is about the industry as a whole or of the market. Weixing Chen, who founded and runs a taxi-hailing app called Kauidi Dache in China, recently commented about one particular crypto asset – EOS. In a statement from Weibo, Chen stated that he was worried about EOS and assets like it in their prioritization of scalability.

The statements were translated, as Chen said that he takes no issue with the technological advancements. Instead, the issue is found in “fraudulent propaganda,” according to the translated text. Chen referred to Million TPS and Next Generation Operating System as examples. He has quite a reputation in the venture capital sector of the Chinese economy as an anti-EOS figure.

Right now, EOS has a valuation of $5.8 billion, and it holds the record as the largest initial coin offering (ICO) to ever occur within the crypto industry. With no live product, the token managed to raise up to $4 billion in May 2018. The following month, the EOS blockchain protocol launched with 21 individuals to produce the blocks on the blockchain ledger with data from the transactions and smart contracts. These individuals are known as “block producers.”

Since the launch, EOS has become increasingly popular amongst users of decentralized applications (dApps). DappRadar reports that the EOS blockchain network is the host of the top three dApps right now, but that has not stopped experts from criticizing how decentralized the network is. The network primarily focuses on offering substantial scalability, along with a high capacity for large transactions, offering plenty of benefits to dApp developers.

Nick Szabo, a pioneer for smart contracts, stated that EOS makes it possible for anyone to freeze funds that users assume belong to them. Further explaining, he said, “Under the EOS protocol you must trust a ‘constitutional’ organization comprised of people you will likely never get to know. The EOS ‘constitution’ is socially unscalable and a security hole.”

This criticism came after a controversial article came out regarding the governance system of the blockchain network. The article says that an inactive account, after three years, can be put up for auction. All of the proceeds from that auction are “distributed to all Members according to the system contract provisions then in effect for such redistribution.”

The CTO of EOS, Dan Larimer, said in October 2018 that the high transaction capacity of EOS is based on the fact that the platform doesn’t solely focus on decentralization. He pointed out that the platform wants to focus on fighting censorship and for “robustness against being shut down.”

https://twitter.com/bytemaster7/status/1120028298573164544

Only the market can decide if prioritizing scalability for EOS is the right approach, but clearly, EOS is gaining interest in the market, or developers would not use the network with such abundance to develop their dApps. The flexibility and capacity for large transactions is appealing, but Chen and investors like him don’t condone the lack of decentralization.

Bitcoin was based on decentralization and ensuring that the public could have a currency that is not ruled by any one country or other entity. Still, the dApp market is new, and it is hard to tell which of the protocols amongst Ethereum, EOS, Cardano, TRON, and others are the right one. Presently, it is impossible to compare dApps to centralized applications, as the last 24 hours alone only show 10,000 users participating.

As of 2:00pm PST, the EOS token is trading at $6.36 after increasing by 1.14% in value in the last 24 hours.

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Ontology releases design for lightweight multichain solution

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Ontology, a high-performance public blockchain project, and a distributed trust collaboration platform, recently released its design for a lightweight and safe multichain system and cross-chain solution.

The solution uses the Ontology blockchain as the main chain, and supports both side-chains whose architecture is the same as the Ontology main chain and side-chains whose architecture is different from the Ontology main chain.

The design allows for interaction between the main chain and side-chains, and also between side-chains. The main chain manages side-chains using a multichain management contract, and the cross-chain interaction between source chain and target chain is done through a cross-chain management contract.

The proof of cross-chain interaction is done through synchronizing key block headers and other state information.

Those interested to read more, can find the full Ontology multichain design paper on GitHub.

Last year, Ontology set up the research institute in order to focus more on the research and development of core blockchain technology and strengthen the ability to explore, reflect on, and apply emerging technologies, as well make contributions to the entire industry. At present, there is more than 10 R&D personnel in the Ontology Research Institute.

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