An Analysis Of The Changes In Demand For DAI

Throughout this post, we analyze the significant changes in demand for DAI over the past year. Why might these shifts have occurred? How do they relate to the crypto ecosystem as a whole? Analyze it using metrics.

Introduction

On the Ethereum blockchain, Maker is one of the most popular dapps. This is an open-source Ethereum project and a Decentralized Autonomous Organization created in 2014.  Its governance token, MKR, is held by people from around the world. Builders of Dai, a digital currency that anyone can use anywhere, anytime. Avoid sending money to accounts impersonating Maker. By leveraging collateral assets approved by Maker Governance, users can generate Dai using the Maker Protocol, also known as Multi-Collateral Dai (MCD). Maker Governance is the community controlled process that manages all aspects of the Maker Protocol. Dai is a publicly traded, unbiased cryptocurrency pegged to the US Dollar, which is decentralized and unbiased. Due to its low volatility, Dai is resistant to hyperinflation. It offers economic opportunity and freedom to all.

We aim to examine whether the DAI has undergone any significant changes over the last year in this dashboard. Additionally, by looking at the below graphs, you can see what caused these changes. On the following graph, you can see the daily volume of MakerDAO DAI tokens for the past year.  There was a volume peak of 20.43B on December 13, 2021 and a volume minimum of 38.72M on May 25, 2020. This indicates an increasing volume trend. The maximum ETH price of $4.71K was observed in November 8, 2021, and the minimum price was observed in May 11, 2020. ETH prices continue to rise over time.

In the below graph, we can see that on Feb 1st,2021 the volume of is increasing suddenly – we can also see that the price of ETH is also increasing during this time period. As a result, if the price of ETH increases, then we have to place more DAI collateral, so in that case, the volume also goes up. Also, in case we consider that on Dec 13, 2021, the volume again increased suddenly, however, the ETH price at that time were lower than when the volume was initially increased. Thus, possibly, the ETH price drop during that period is negatively affecting the volume here when the volume is withdrawn because of the ETH price drop .

From the below graph we can see the weekly circulation of DAI fro the past one year. Initially we did not see much DAI circulation later we can see a the circulation was increased more than a 10 Billions. On May 13, 2022, we can also expect to see an increase in circulation of DAI. This is due to the crypto ecosystem as a whole. Our knowledge of makerDAO’s volume is already influenced by the ETH price. During the Terra incident of May 13, 2022, the ETH price dropped significantly. Because so much liquidations may occur due to the decreasing price of ETH, the decreasing price of ETH can affect MakerDAO volume. Maximum DAI Circulation of 11.25B was observed on February 14, 2022. DAI Circulation tends to increase. 

We see from the below tweet how the makerDAO is performing during the liquidation of several vaults. This is done by adding more collateral or by paying off your DAI debt partially or totally during the period. 

Observations

  • From the above analysis, we can conclude that we will have to place more DAI collateral if the price of ETH increases, and in that case, the volume will also increase. Moreover, the drop in ETH price during that period is negatively affecting the volume here when it is withdrawn due to the price drop or by liquidation.
  • On May 13, 2022, we can also expect to see an increase in DAI circulation. The use of cryptocurrency in general will probably contribute to this increase. As we already know, the crypto market is going to be highly volatile. We already know the makerDAO volume is influenced by the ETH price. ETH’s price plunged significantly during Terra incident of May 13, 2022. A decrease in the price of ETH can affect MakerDAO volume because of the large amount of liquidation that may occur. 

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