Maker Token (MKR) Up Nearly 50% As Rival Terra Crashes
Maker’s (MKR) price has jumped nearly 50% in the last few hours on speculation over replacing Terra’s dominance in DeFi. The DeFi token behind the DAI stablecoin seems to be benefitting from the fall of its competitor Terra’s UST.
MakerDAO is has proven to be more stable than Terra thanks to having a more effective risk framework for managing stability. Its decentralized risk management is coordinated by the first risk team, a template model team, the internal risk team of the Maker Foundation.
Maker May Dominate DeFi As Terra Falls
Maker’s price jump in the last 24 hours indicates investors prefer DAI’s safety against UST’s risk of holding. Maker, an Ethereum-based DeFi protocol, lets investors mint the collateralized stablecoin DAI. It allows users to lock up a range of crypto such as Bitcoin, Ethereum, or liquidity positions on other protocols such as Curve to mint DAI stablecoins.
With Terra’s LUNA falling more than 90% in the last 24 hours after the LFG’s plans to raise $1 billion in funding for the UST stablecoin failed, Maker (MKR) price skyrocketed above $2000 momentarily. The price has since retreated and is currently trading 30% higher at around $1500. The spike appears to be a result of Terra’s investors jumping into Maker as LUNA price sinks below $1.
Moreover, the de-peg of UST stablecoin has led to DAI becoming the fourth-largest stablecoin by market cap. Previously, Maker’s DAI stablecoin had lost significant market share to UST stablecoin. Terra’s founder Do Kwon also claimed the death of DAI stablecoin with the increased popularity of UST.
The governance and decentralized risk management protect Maker’s stability, and provides support to its stablecoin DAI.
How DAI Maintains Dollar Peg During Extreme Volatility
Maker is one of the oldest DeFi projects. It allows users to have exposure to assets such as Bitcoin with backing from the DAI loan. During falls in positions below collateralization thresholds, the DeFi token liquidates the positions. Thus, it allows DAI to maintain its peg with the US dollar even during periods of extreme volatility.
Unlike UST, DAI is not an algorithmic stablecoin, but uses a collateralized reserve to maintain its peg. Given the torrid history of algorithmic stablecoins, this may make it a superior alternative.
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