"There's no evidence that $DAI will be stuck below $1. Basic economic principles point to the contrary being more likely."

- Tuned3f
from reddit
in fricking, MARCH of 2019

real world understanding > textbook theories and concepts https://twitter.com/DegenSpartan/status/1111887672190984192

and just like 13 months ago,

people today still do NOT understand that $DAI demand and DAI supply / CDP demand are weakly correlated

his conclusion and mine were the same

without DSR live yet, there was only 1 correct option:

ramp the fuck out of the $DAI stability fee to correct excess supply overhang

many many people did not believe we would see double digit SF

i predicted 20%+ https://twitter.com/DegenSpartan/status/1117619123771412480

as we would later know from history, SF did go to 20.5%

granted, i was too pessimistic about the supply overhang

but that SF from the low single digits to 20%+ broke the model of what people thought was even possible or realistic

it's been a while now, but how the tables have turned

$DAI from being ~5% under the peg in 2019 H1 has now gone to ~2% over the peg in 2020 H1

we're in the "contrary being more likely" situation that Tuned3f talked about because CDP demand is not scaling with DAI demand

there's 2 basic things that @MakerDAO can do

- reduce $DAI demand
- increase CDP demand (DAI supply)

they have already gone all out to reduce DAI demand by bringing the DSR to 0%

a next step for reducing $DAI demand is to push DSR negative to release out that $10M into circ?

the other thing that they are doing is increasing CDP demand (DAI supply)

$ETH SF 0%
$BAT SF 0%

leverage demand using those tokens has dried up

they need MOAR collateral to ramp up $DAI supply

hence, the $USDC situation, which i predicted https://twitter.com/DegenSpartan/status/1158943910132998146

so what's next in their playbook?

obviously:

- slap down $USDC stability fees
- collateralize more stablecoins ( $PAX $BUSD $TUSD all on the menu now)
- collateralize literally anything else that they can, wouldnt be surprise to see lots of top ERC20s coming in

im not sure if technically possible to execute or implement, but maybe negative stability fees to induce even more $DAI supply?

with DSR at 0% or negative (not sure if possible either), demand has been killed to the max of their abilities

while many in the @MakerDAO $MKR ecosystem seem fine with $DAI trading at a premium because, above peg is better than below peg (which i do agree), it is still a big problem to deal with because it affects their long term positioning as THE stablecoin of choice

already many people and projects are diversifying from " $DAI risk" by either adding $USDC (and others) as alternatives, or outright replacing DAI with USDC

when enough people and projects switch over, what makes you think they will ever switch back?

imo, @MakerDAO is in a very catch-22 situation to deal with themselves dropping out of favor in the ecosystem

- introduce even more and lower grade collateral and ironically take on the worst of both centralized and decentralized aspects

- fade into irrelevance

obviously they are going with #1, that is the only correct choice to make as a $MKR bagholder

personally, i hold no MKR - i dont see a graceful solution to solve unscalable supply

i do use $DAI a lot though, but these days increasingly less so, been using the alternatives more

a short term respite that kicks the can of unscalable supply down the road is $ETH mooning like shit and demand to leverage with ETH as collateral returns back into the system

but it is not a long term solution

they need a shit ton of centralized collateral to collateralize

they will be focusing on 3 types of collateral:

- existing ERC20s
- the BTC variants of ERC20s
- centralized issued ERC20s representing real world assets

this wasnt meant to be a bearish piece on $MKR, more of a thought experiment of how they can unfuck themselves and what comes next, but re-reading what i wrote sure as heck does not make me want to hold any

my final nail:

with so many other options (both centralized and decentralized, perps / options)

for higher leverage and better liquidation terms (capital efficiency),

why would anyone open a CDP? https://twitter.com/DegenSpartan/status/1240454830394499074