I’ve talked about all sorts of projects in the past few weeks. The big names like Bitcoin, Ethereum and Ripple, and many others. I’ve stressed the significance of certain niches and trends, such as cloud computing and the emergence of exchange tokens, Blockchain-as-a-Service (BaaS) platforms and Web 3.0 developments.
However, the undisputed king of 2019 trends in the crypto market is that of stablecoins. Virtually almost everyone - even the noobs who have just entered the market - know what a stablecoin is and understand its purpose. These fiat pegged tokens have quickly become a go-to tool for traders, who leverage the stable prices to seize upon Bitcoin and other altcoins when the opportunity is right.
And for those who may not know - this is a guide after all - stablecoins are used primarily for trading and to beat the volatility of the market. By having its value pegged to a fiat currency, investors can buy a fiat value equivalent amount of stablecoins, which are unaffected by volatility, and then use that to buy other assets when their prices are lower.
Having said that, several stablecoins have emerged in the past two years, each attaching itself to various fiat currencies, though almost all are pegged to major fiat currencies like the US Dollar. Most of these stablecoins are similar to each other, differing primarily in the jurisdictions they operate in or middling features.
One stablecoin that is noticeably different from the rest is SAI stablecoin, one of the two coins involved in the MakerDAO ecosystem. The dual token stablecoin ecosystem has made a lot of headlines in the crypto world and is a core part of the decentralized finance ecosystem.
Here, I’ll speak of the history of the SAI token, its role in the MakerDAO ecosystem, how exactly it fares and differs from its competitors, and the partnerships that have been formed.
The History of Sai (SAI): A Truly Decentralized Vision
The idea for a dual token stablecoin ecosystem that was truly decentralized came about in 2015. The company’s founder and Chief Executive Officer (CEO), Rune Christensen, were supremely focused on creating a decentralized stablecoin. After being in development for nearly 3 years, the project fully launched in 2018, with both the SAI and MKR tokens launching in late 2017.
The MKR token, which has a variable price, is currently sitting quite nicely at $634 at the time of publishing, having experienced significant traction since its release.
The key here is that the SAI token is truly decentralized. A stablecoin, like Tether for example, can only function if the company has the funds to back every one of the tokens. Sai operates differently, based on a Collateralized Debt Position (CDP) model, which I touch on below.
The Purpose of Sai (SAI): A Stablecoin Coin with Crypto as Collateral
The MakerDAO’s dual token ecosystem is very different from its stablecoin counterparts. The SAI token itself is the stablecoin pegged to the $1 value, but the MKR token plays a large role in maintaining that $1 valuation and keeping various network parameters acceptable in the way that the community would accept. In other words, the SAI token is the stablecoin itself, while the MKR token is what offers the level of decentralization that sets MakerDAO apart from its competitors.
The SAI token is backed by other cryptocurrencies, though only Ethereum (ETH), available until very recently. On November 18, it was announced that multi-collateral DAI had been introduced. Existing single collateral DAI is now referred to as Sai (SAI) while multi-collateral Dai is referred to as DAI. This multi-collateral Collateralized Debt Positions (CDPs) allows for collateral to exist in various tokens. The introduction of multi-collateral is accompanied by the Dai Savings Rate (DSR), which lets users earn savings by just holding Dai. The Basic Attention Token (BAT) was the first additional collateral to be voted in by users.
The MKR token is involved in running the Maker protocol, which in turn controls the smart contracts that power the SAI token. MKR holders can vote with their MKR tokens to determine whether proposed changes to the network are executed.
The Maker (MKR) Governance Dashboard
With CDPs, users can deposit their collateral in a smart contract, Ethereum for example, and use that to generate SAI tokens. At a later point, the user can withdraw the deposited collateral and the value of the collateral is always higher than the value of the debt accrued by creating such a smart contract. MakerDao has also released a decentralized application (DApp) called Oasis, built on top of the Ethereum blockchain, that allows users to trade tokens and borrow against them.
I will not go into depth about how CDPs work and the role of MKR - for that, read my guide on the MKR token. Suffice to say that this system prevents the price from shifting from its $1 target and keeps the network’s economy running smoothly. I also recommend reading the MakerDAO whitepaper.
As for the purpose of SAI itself - well, that is clear, it being a stablecoin. A stablecoin, as I mentioned, is a token that is very useful in beating marketing volatility and is considered a good temporary investment hold, as savvy investors wait for a dip, at which time they use the stablecoin to invest in other assets.
Issues: Reported Conflicts Regarding Project Vision
In April 2019, CoinDesk reported that it had gotten hold of a leaked letter which detailed tension in the management of the MakerDAO ecosystem. The letter, from an attorney representing five board members of the MakerDAO Ecosystem Growth Foundation (MEGF), alleged that MakerDAO CEO Rune Christensen had pressured the board members to resign.
This was followed by CoinDesk obtaining information that involved former MakerDAO Chief Technology Officer (CTO) “Zandy”, AKA Andy Milenius, who said that the Maker development team was going through its most difficult time yet. The tension came from the fact that there were differing opinions on how MakerDAO should proceed with its direction.
However, Milenius said that this tension was “settled” shortly after Coinbase reported the conflict. The story is well worth reading in full.
All partnerships for SAI have to do with the MakerDAO ecosystem as a whole, and there are quite a few partnerships of them, some of them with very notable cryptocurrency projects.
MakerDAO announced a collaboration between SAI and Thailand-based project OmiseGO (OMG), a project that is working on pioneering banking solutions. The collaboration between the two will see the SAI stablecoin made available on the OmiseGO (OMG) network, namely its decentralized exchange (DEX). On the other end, the OMG token will be made available as collateral, among the first multi-collateral options available in the MakerDAO ecosystem.
Another fairly well known project that MakerDAO has collaborated with is Request Network, a project building accounting/invoicing solutions. This made SAI one of the first ERC-20 tokens available on the Request Network (REQ), allowing Request Network’s users to pay invoices with the decentralized stablecoin.
MakerDAO is also working with blockchain money transfer company Wyre, which allows for “fast and compliant conversion of fiat currencies to Dai.” Wyre’s trading engine and fiat on and off ramps bridge the traditional banking industry with the emerging digital assets market, offering more payment cycles and better revenue streams.
The project has also partnered with well known gold-back token project, Digix (DGX). This has introduced the DGX token as collateral for the SAI stablecoin.
Lastly, but certainly not least, is the fact that Maker has sold $12 million worth of MKR tokens to Andreessen Horowitz and Polychain Capital. Other partners involved in this include Distributed Capital Partners, Scanate, FBG Capital, Wyre Capital, Walden Bridge Capital, and 1confirmation. The funds received from these strategic partners will go towards development, marketing and ecosystem expansion.
Stablecoin Competition: There's No Shortage
The number of projects releasing stablecoin is immense. Whether it’s the Winklevoss twins’ Gemini Exchange releasing the Gemini Dollar (GUSD), Coinbase and Circle releasing USD Coin (USDC), or the myriad projects releasing stablecoins pegged to the Pound Sterling, Hong Kong Dollar, gold (DGX) or the much maligned Facebook project Libra, there is no doubting that this is a space on the cusp of growing exponentially. And, of course, you cannot leave the controversial Tether (USDT) token out. There’s TrueUSD (TUSD) as well.
As it is backed by cryptocurrency, and implements a reliable mechanism to keep the stablecoin value at $1, MakerDAO’s ecosystem does one better than its fiat backed counterparts. For one thing, it does not have to rely on the transparency of its dollar backed reserves, which has been a pain point for stablecoins like Tether (USDT). The MKR token also offers its investors a governance mechanism with which they can determine various parameters of the ecosystem i.e. it is decentralized, in keeping with the ethos of cryptocurrencies.
Despite the large number of stablecoins being launched, it remains to be seen how much activity stablecoins will display in the future, given that regulation will likely determine a lot of this. In the meantime, it seems like the several stablecoins are happy to co-exist. The Maker (MKR) itself is doing phenomenally well, so things look bright for the MakerDAO ecosystem.
Stablecoins are so well known that it even has its own Wikipedia page - which a surprising small number of cryptocurrencies and Distributed Ledger Technologies (DLTs) related concepts have. They are certainly a phenomenon that is here to stay - at least for short to medium term future. If prices of tokens stabilize, then they may lose some of their utility, but there is still some purpose to be found by being a gateway to the fiat world.
Furthermore, the world of DeFi is growing at an incredible pace, and the potential use cases there are far from exhausted. Determining whether or not SAI or MKR will be successful in the future is a moot point right now. Rather, for the moment anyway, it is a very good stablecoin initiative that has cemented its position as a premier stablecoin option.