Not all stablecoins are the same, says Greg Diprisco, head of business development for the MakerDAO Foundation. Rather than replicating traditional banking models on the blockchain, Dai is taking finance in a new direction. Greg explains how Maker’s Dai is different and how over-collateralization leads to high annual interest rates.
In this episode of OK Let’s Chat, Alex sat down with Greg to discuss how Dai fulfills Bitcoin’s original promise, as well as ways gamification may make the future of money more fun.
You can listen to our entire conversation above, but here are a few highlights:
What makes Dai different?
Decentralization is what lets Dai fulfill the promise originally made by Bitcoin, says Greg. Bitcoin was intended to be a better version of peer-to-peer cash, but its volatility makes it a less than ideal cash substitute. Dai is soft-pegged to the U.S. dollar, so generally speaking, you can always buy and sell it for a dollar.
While that consistency has obvious appeal for the average person, according to Greg, the DSR, or Dai Savings Rate, is what makes Dai so desirable. “The DSR is the reason that people want to hold Dai. They don’t take on any additional risk than they’re taking already by holding Dai, and they don’t have to lock up their Dai in any sort of liquidity requirement contract. It is a smart contract that you’re putting your Dai in, but you can withdraw it at any time, and right now, even though the ten-year bond is at .5 percent, I think, Dai has a 7 percent annual interest rate. That 6.5 percent spread is the tangible benefit of decentralization.”
“The way the Dai Savings Rate is paid out is through our vault contracts. The way that Dai is created in the first place is people pledge collateral, let’s use Ether as an example because that’s the primary form of collateral in the system, they pledge Ether to one of our smart vault contracts, that Ether is now locked. They draw Dai against it. When they draw Dai, they’re actually printing their own money.”
Decentralization opens the door to gamification
Treating money like a game flies in the face of how our parents’ generation handled finance, which is part of the appeal, says Greg. Apps like PoolTogether, a savings game that uses earned interest as winnings for a lottery, are more exciting and give players a feeling of agency.
“I think [gamification is] something particularly our generation is hungry for, with their money. This is a trend that’s more broadly affecting the economy. If you talk to anybody that works at a casino, they’re all rushing to integrate skill games because people of our generation don’t want to play games where the odds are literally fixed against them. They want to have some element of skill where if they’re talented, they can win money.
“I think you’re going to see our generation want to do that as well, especially with the low yield we’re seeing in the financial sector. Sure, if you’re going to pay me 15 percent on a government bond, I don’t want to have any skill at all, I’ll just take that. But if all I’m gonna make is .5 percent and it’s not so important to me anyway? It’s interesting to think about how we can divvy up that interest based on skill rather than just paying it out to everyone evenly.”
Dai’s next move
Growth is on Greg’s mind when it comes to the kind of milestones he’d like to see Dai hit in the coming year. The current system works and is growing, but is inherently limited by the types of collateral it accepts. More kinds of collateral are necessary for the exponential growth Greg hopes to see.
“[W]e need to execute one of our core functions, which is truly becoming a multi-collateral system. Right now, we have Ether and we have BAT; BAT is very similar to Ether in its price mechanics. We need to diversify the collateral portfolio into things that aren’t so crypto-correlated.
“If we can do that and if we can prove the utility of our system to places where currently only commercial banks can compete, then we can start to see the exponential growth that we need. If we get good collateral types that produce high-interest margin, we can keep the DSR very high, and if we can keep the DSR very high, we can continue to onboard any interest-rate-sensitive investor.”
We’d like to thank Greg for taking the time to speak with us! Be sure to subscribe on iTunes or wherever you get your podcasts.
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