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50% DAI is locked in compound. Why are you concerned?

August 12, 2020

The blockchain company’s data Flipside Crypto show that 50% of DAI, Maker’s decentralized stable coin, is now in Compound (COMP).. Although the data appears to be a positive factor in the growth of COMP, shows a worrying trend for DAI.

Since June the number of DAIs in the DeFi protocol, Compound, increased rapidly. As of August, there is almost $ 800 million in DAI in compound.

50% DAI is locked in compound. Why are you concerned?50% DAI is locked in compound. Why are you concerned?

Total insurance value in compound finance (USD). Source: Flipside Crypto

Why it could be a worrying trend for DAI

DAI is the dominant decentralized stablecoin in the cryptocurrency market. In contrast to other widely used stable coins such as rope (USDT), DAI is managed by a peer-to-peer ecosystem.

According to researchers at Flipside Crypto Having such a significant part of the DAI offering concentrated on a single platform can lead to liquidity problems. Other users of other competing platforms may want to use DAI, but there may be a lack of supply in the market.

In the past two months The DeFi market has grown in value by more than $ 4 billion. This, of course, resulted in an increase in demand for most DeFi-related projects and services. Certain The appetite for decentralized stable coins such as DAI and oracles increased significantly.

As a result A large number of DAIs targeted the dominant DeFi protocols. Current data from DeFi Pulse show that Compound is insured for a total of more than $ 790 million, but the researchers emphasized that DAI’s massive entry into Compound could become a problem. They declared:

“DAI is the only stable coin with support. It is said to be more decentralized and censorship-resistant than USDC and USDT. However, the lack of liquidity could lead to uncertainty about using DAI as a decentralized stable coin in DeFi protocols.” .

Flipside Crypto further stated that many DeFi teams are disappointed with the limited liquidity and stability of DAI.. These liquidity problems, which are inherently difficult to solve for a decentralized project, You could push users towards centralized stablecoins.

Tether and USDC valuations have risen significantly since April. Now, Tether, the largest stable coin in the global cryptocurrency market, is worth more than $ 10 billion.

Short term, Maker and DAI ecosystem could solve the problem of maintaining liquidity. However, if solutions are not presented, the researchers warned that it could affect the impact of the DAI network. The researchers found:

“We have already seen many DeFi teams express their frustration with the lack of liquidity and stability in DAI. Many are opting for USDC instead. This is likely to hurt the long-term impact of the DAI network, if not.” does nothing to immediately correct the problem. “

COMP and Maker continue to thrive

Despite the strong market correction on August 11th The connection’s COMP token has increased by over 41%. Maker, the network that DAI is based on, also saw a 20% increase overnight.

The strong momentum of COMP and Maker means that the prices for their domestic tokens continue to rise. The rapidly increasing demand for both networks, however, brings problems of scale and liquidity with it.

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