Ryan Sean Adams, the founder of Mythos Capital, a financial services firm that “holds, keeps, and makes cryptoassets”, has predicted that the demand for the Dai stablecoin “will likely” increase in the coming months.
1/ DAI demand as a stimulant
Coinbase just listed DAI for retail, which will likely lead to increases in DAI demand over the coming months. A second-order effect: DAI demand provides an economic stimulant to the Ethereum economy by decreasing the cost of leverag
A thread…
— Ryan Sean Adams (@RyanSAdams) May 23, 2019
Anticipated Increase In Dai Demand To Serve As Ethereum “Economic Stimulant”
This, as San Francisco-based cryptoasset exchange Coinbase listed Dai for its retail customers on May 23, 2019. According to Adams, the potential overall increase in Dai demand will result in a “second-order effect” in which the stablecoin will provide an “economic stimulant” to the Ethereum (ETH) economy by effectively reducing the cost of entering leveraged positions.
Per Adams, a strong demand for Dai “relative to supply” may lead to a corresponding decline in the MKR interest rates on ether-backed loans. The crypto entrepreneur explained that this could happen because as demand for the stablecoin rises, the stablecoin could trade above its $1 peg. This may result in Maker lowering borrowing fees “in order to stabilize Dai price (by increasing Dai supply).”
MKR as “Rate-Settling Central Bank”
Adams, the former VP & Principal at Vivus Software in Charlottesville, Virginia, further noted:
Given MKR is a kind of rate-setting central bank (w/ 90% dominance in locked ETH), the lending rate decreases DAI loan rates across the Ethereum economy. This makes DAI cheaper to borrow and results in more ETH locked in decentralized finance (DeFi) loan protocols.
The Brock University business administration graduate further mentioned that the effect of Dai demand increase is an Ethereum “economic stimulant of sorts.” Moreover, Adams pointed out that cheaper Dai loans will lead to increased supply of Dai. This will result in an “increased demand for ETH, [and an] increased demand for DeFi protocols.”
Demand to Have Relatively “Slight” Impact on Ethereum Economy
Additionally, there will be “greater liquidity of the above…until an equilibrium where demand meets supply once again,” Adams stated.
However, Adams acknowledged it’s difficult to accurately determine to what extent the projected increase in demand for the stablecoin will impact the Ethereum ecosystem. Notably, the crypto investor believes it’s “probably slight” when compared to other contributing factors to the Ethereum economy. He also remarked:
I expect the feedback loop between DAI the currency, MKR the bank, ETH the store-of-value (SoV) to increase as Dai grows.
Developed by MakerDAO (a Santa Cruz, California-based firm that has launched a decentralized autonomous organization on the Ethereum blockchain), the stablecoin’s price volatility is measured against the International Monetary Fund’s (IMF) foreign exchange currency basket (SDR).
