30th September 2024 > > MKR & SKY.

tl;dr

The conversion of MKR to SKY and its native stablecoin DAI to USDS raises some interesting questions, and one very annoying problem.

Actually, it is more than just a problem.

Market Snap

Market Wrap

That is a disappointing, and indeed surprising, start to the week.

Eleven out of the last twelve trading days have seen inflows to the spot BTC ETFs, a pattern likely to continue. The threat of war in the Middle East isn’t affecting any risk assets.  The DXY is at a year’s low which suggests dollar denominated assets should be rising in price. Chinese stimulus is flooding into the market. And no, the fact it is quarter end is not the explanation.

Short-term price movements are utterly unpredictable.

Curious Cryptos’ Commentary – MKR/SKY

Hard on the heels of the conversion of MATIC to POL (https://www.curiouscryptos.com/post/27th-september-2024-a-lovely-chart-matic-pol) comes the conversion of MKR to SKY.

MKR is the native coin of the Maker ecosystem. MakerDAO, launched in December 2017, is an early example of a real-life practical implementation of the groundbreaking concept of a decentralised autonomous organisation (DAO).

The very first DAO that ever existed – fittingly known as The DAO – was built, like MakerDAO, on the Ethereum blockchain. Launched in April 2016, early investors contributed nearly 4mm ETH, worth approximately $70mm at the time, despite several security flaws that were publicly flagged. Shortly afterwards, The DAO was hacked and $50mm of ETH was stolen.

Following this rather unfortunate state of affairs, the decision was taken to roll back the Ethereum blockchain to just before the attack, patch the vulnerability, and restart the chain without the hack, thus making the investors whole, and leaving the hacker with nothing.

This sparked a furious debate amongst Ethereum advocates and the wider crypto community, as this decision to roll back violated the key principle of the immutability of the blockchain. In response, one group of miners (ETH was PoW at the time, not PoS as it is now) kept the original chain going. It continues to this day, known as ETC (Ethereum Classic). You are more likely to find the maxis using ETC rather than ETH, and, just for once, I have some sympathy with their point of view. However, with a market cap of $3bn for ETC versus $320bn for ETH, it is obvious who won the argument. Note that the hack persisted on the ETC chain.

Back to MakerDAO.

It has a stablecoin known as DAI, whose value is pegged to the dollar using a hybrid model of a collateralised stablecoin and an algorithmic stablecoin. The CC Treasury was an early investor in MKR, though personally I still have some reservations about the robustness of the DAI peg in stressed markets. To be fair, we have seen a lot of stress since 2017, and there have only been isolated incidents of a breakdown in the peg. The spring of 2020 (Covid hype time) saw some wild swings between 96c and $1.06, and another drop to 98c in March 2023. Other than that, the peg has largely been maintained. Perhaps my perfectly justified natural aversion to algorithmic stablecoins doesn’t apply in this case, because of the security provided by the crypto collateral.

…

Holders of MKR can swap to SKY in a ratio of 1:24,000. Holders of DAI can swap to USDS at a ratio of 1:1. The same functionality that exists for MKR and DAI is replicated for SKY and USDS.

So, what is the point?

This rebranding is designed to have the effect of encouraging greater adoption of USDS as a stablecoin that will in future receive regulatory approval, which sounds like an appropriate ambition. Make no mistake, the regulation of stablecoins is a high priority for countries that embrace the crypto revolution, and rightly so.

There are some who are upset by this move to a stablecoin that will be more acceptable to the regulatory authorities, for similar reasons why there continues to be supporters of ETC:

Scott makes a valid point, which has a practical implication we shall shortly get to.

…

If you wish to convert MKR to SKY, and DAI to USDS, and then use the functionality of SKY and USDS you need to head over to this website:

https://sky.money/

As part of the regulatory compliance approach, this is the screen you will see when you are using your VPN:

If you click the button that says “Launch App” you will again be refused access. To the best of my knowledge this is the very first example of DeFi being sensitive to the use of a VPN.

When I turn off my VPN and launch the app this is what I see:

The cause of this problem is simple to understand.

The UK is unwelcoming to the crypto revolution. SKY’s functionality is not available here. UK politicians and regulators are letting us down once more, as is their wont.

This also means I must now sell MKR, unless I hop on a ferry to Calais to swap to SKY. And I then have to repeat that return journey every time I want to make an adjustment to my SKY investment. All things considered, that really isn’t a sustainable solution.