Cryptocurrency Ethereum is backed by a decentralized finance protocol MakerDAO (MKR). What is that have to do with this news? Everything. According to sources, the total value locked in it has reached new heights (slightly above $1 million, 13% rise).
This the trend we are currently seeing since July 22. During the procedure of minting DAI Stablecoin, Ether is used as a collateral asset. What could have caused this rise? Maybe it’s the constant rallying in support of Ether by many crypto experts.
The Maker community favors raising the debt ceiling, as it can be seen from the proposals put forward by them on July 17 and 20. All these efforts have increased the number of mintable DAI from 160 million to 220 million.
As of now, DAI is the most preferred asset by miners and investors. Previously, people had borrowed over $800 million DAI, even when the supply was much lower than that ($200 million). How did this happen? DAI users supply it to the Compound (the target destination for Stablecoin), then borrow it (more than 70%) and resupply them. This chain of events would happen cyclically, thus boosting its value.
After this cycle is over, you can only mint DAI to get it, and here’s where ETH comes in. Right now, the true value is set at $139.6 million, and it is calculated from Maker’s pie function. It is essential to know that although this TVL (Total Value Locked) metric is much celebrated in the community, it has its downfalls.
Disclaimer: Not a financial advisory.