Following a vote in favor of a fee increase by MKR holders, the Maker stability fee was hiked to 3.5% last Friday. This increase reflects a 133% increase from the previous fee of 1.5%, and could indicate a hightened interest in MKR from speculators.
When collateralized debt positions (CDP) are closed, they must be accompanied by an MKR burn that represents a percentage of the DAI returned. Of course, this metric correlates to a consistent deflation of MKR, as the burn indicates that the MKR is out of circulation permanently. For a more robust analysis on the fundamentals of the Maker lending protocol, refer to my last post.
Maker's lending protocol went live at the end of 2018. And already, 556 MKR has been burned- an amount equivalent to US$360,000 at time of writing. However, most of this burn took place with much lower fees- primarily at a rate of 0.5%. At current levels of usage, it is predicted that the yearly burn with the current lending rate will eclipse 5,000 MKR. This means that, at current prices, over US$3 million in MKR will be removed from circulation every year.
While this sounds like a lot, it's important to keep in mind that it only represents a deflation of 0.5% per year. Significant, yes, but not exactly an indication of definite profit to MKR holders. Don't be mistaken, that's not a bad thing. MakerDAO is a unique project, and one that can excel best when it's not overly burdened by massive volatility from speculators. To date, MKR's growth has been significant, but consistent. For the most part, MKR has spent much of the year between US$450-650. Not a "stablecoin" by any means, but a lot less volatile than a vast majority of coins in the space have been for the past year.
More than anything, this anticipated deflation of 0.5% is monumental in that, for lack of better words, gives an excuse for traders to buy into MKR. The most profitable traders in the crypto space have strong technical understanding of the projects they look to dabble in and respect in the visions and implementations of the chosen projects. Additionally, they see strong indications in the tokenomics of the coins to appreciate in value. The deflationary metric of MKR has massive implications in that it suggests intrinsic appreciation in the tokenomics of the ecosystem. MKR isn't a hot potato like a lotof other projects out there, it's built to gain value over time.
Beyond this, the lending protocol is expected to expand immensely when its next core feature, multi-collateral DAI, is launched. This feature will allow users to take out DAI loans with tokens like OMG, DGX, and REP in addition to Ethereum. The introduction of more tokens means the market for DAI loans will expand to the holders of each of these coins. As it stands now, CDPs are realistically only attractive to individuals that are existing long term holders of Ethereum. Holders of other projects might not be inclined to liquidate their token of choice for ETH to take out loans, but multi-collateral DAI fixes this obstacle.
In addition to the burn metric, MKR maintains value for its role in the governance of the DAO. Maker holders place votes, participate in govnernance meetings, and direct the future of Maker as the direct owners of the DAO. As Maker continues to gain popularity and lock up more and more of the total supply of ETH (over 2% currently!), participation in Maker will be more and more sought after, especially with an ever decreasing supply of ownership "shares" available.