Can Maker Maintain its Recent Surge or Was it Driven by Short-term Factors?

Maker, a cryptocurrency, has experienced a remarkable surge in price over the past month, with a significant increase between July 15 and July 22. This surge has resulted in its highest daily close in almost a year. However, it is important to analyze the factors behind this surge to determine if Maker can maintain its current trajectory or if short-term factors were responsible.

The Proposed Upgrades: “Endgame” Roadmap

In mid-May, MakerDAO introduced a five-phase roadmap called “Endgame” which includes a new blockchain, rebranding, and the introduction of two tokens with updated functionalities. The primary element of this roadmap involves developing incentive programs for interactions and governance participation using a new chain connected to the Ethereum network. These proposed changes may have influenced the recent rally in Maker’s price.

Venture Capital Sell-Off

The rally in Maker’s price cannot be solely attributed to the proposed changes, as the cryptocurrency remained stable for 30 days after the announcement. It is suggested that major venture capital firms, such as Paradigm Capital and A16z, likely divested a significant portion of their MKR investments. The risk of secondary token sales to venture capitalists has always been a concern for Maker. The divestment of positions by Polychain and Dragonfly further supports the rally’s credibility, indicating the anticipation of other venture capitalists following suit. However, Christensen, the co-founder of MakerDAO, has demonstrated his commitment to Maker’s long-term performance by adjusting his holdings, reducing positions in Lido DAO and increasing his stake in MKR. These actions add confidence to Maker’s future prospects.

MakerDAO has implemented a new smart burn mechanism to address challenges with the previous system. The simultaneous closure of multiple collateralized debt positions (CDPs) could lead to a shortage of DAI, the stablecoin associated with MakerDAO. The new mechanism involves purchasing MKR from the market and burning it independently of CDP closures. This effectively responds to market changes and reduces the supply of MKR, positively impacting its price.

MakerDAO has achieved an impressive increase in earnings over three months by reducing reliance on the USD Coin stablecoin and incorporating yield-generating real-world assets. Unlike other stablecoins, DAI provides a variable interest rate known as the DAI savings rate (DSR). Although the increase in the DSR has not yet reversed the trend for the DAI supply, the higher savings rate enhances the likelihood of sustaining Maker’s DAI supply.

Maker’s recent rally has been driven by various factors, including the proposed upgrades in the “Endgame” roadmap, venture capital sell-offs, reduced risk, and creative solutions such as the new smart burn mechanism. Additionally, the significant increase in revenue and the co-founder’s commitment to Maker contribute to the cryptocurrency’s positive outlook. While it is always important to carefully analyze the factors influencing a cryptocurrency’s price surge, these elements position Maker well to sustain its momentum and continue its upward trajectory.