Stablecoins are the future and one of the most profitable projects in the crypto space.
Author: Taiki Maeda
Translation: Shenchao TechFlow
In the MKR/SKY report from a few months ago, I proposed that the restart of buybacks would allow it to outperform most crypto assets on a risk-adjusted basis. Since the announcement of the buyback on February 20:
MKR has risen 46% compared to BTC,
MKR has risen 70% compared to ETH,
MKR has become one of the few cryptocurrencies with a price increase year-to-date (YTD): +24%.
In this update, I will discuss why I believe this trend will continue from three aspects:
Launch of the SKY staking mechanism
Mandatory migration of SKY tokens (over 10% of the supply will be burned)
SPK token mining plan
Introduction of the SKY Staking Mechanism
Currently, MKR/SKY is a token that uses all protocol revenues for token buybacks. At the current buyback rate, the protocol buys back about $15 million per month (about $500,000 daily), which is approximately 1% of the circulating supply per month (the highest among all crypto projects).
On April 30, Rune posted a proposal in the forum to launch the SKY staking mechanism. According to the proposal, 50% of the protocol's revenue will be allocated to SKY stakers, paid in USDS. This means that about $250,000 will be used for buybacks daily, and $250,000 will be distributed to stakers.
Assuming 33% of the SKY supply is staked, stakers are expected to receive a staking yield of 7-8%.
Mandatory Migration of SKY Tokens
In the same update, it was also mentioned that there will be a mandatory migration from MKR to SKY:
Since MKR is one of the earliest ERC20 tokens (launched in 2017), there are inevitably some permanently lost tokens. This could be due to lost private keys, lost wallets, or the death of holders. Through on-chain data analysis, I discovered some "dormant MKR tokens" that will inevitably be burned from the supply.
I based my assumptions on reasonable hypotheses, such as: "If there are 23,349 MKR tokens that have not been transferred in the past 4-5 years, I can assume that about 90% of them are permanently lost and will be burned." Based on these assumptions, I expect about 100,000 MKR to be burned due to the migration (approximately 11.4% of the circulating supply). By referencing other cases of lost tokens (such as Aragon DAO), I believe this is a conservative estimate.
For example, in 2023, the Aragon DAO token ($ANT) was trading below its treasury value. "Treasury raiders," or RFVooors, bought tokens at prices below net asset value (NAV) and demanded redemption of the treasury for profit. This action was successful, leading to the initiation of the ANT token migration to a new token to redeem the treasury value. During this process, about 27% of the tokens were not migrated, suggesting that these tokens are permanently lost.
Therefore, I expect that in the coming months or years, 10-20% of MKR will be burned, which will support the token price. Additionally, this mandatory migration may encourage more centralized exchanges (CEX) to list SKY, bringing additional benefits.
Launch of SPK Tokens
Spark is a project that combines lending markets with on-chain asset management, achieving $40 million in revenue in the first quarter of 2023 with almost no incentives. They are able to borrow stablecoins at subsidized rates for SKY, thereby allocating capital on-chain.
SPK will be a "fair launch/mining" token, which users can only mine by staking USDS or SKY (specific economic model can be referenced in the related document). In the first two years of token issuance, 50% of the $SPK incentives will be allocated. If we assume a fully diluted valuation (FDV) of $500 million, then $250 million of that value will be allocated to SKY/USDS stakers. This not only provides staking rewards for the native token but also promotes the growth of USDS, which in turn will further drive more buybacks in the future.
Additionally, other subDAOs or "star" projects are set to launch (such as Solana Star, RWA Star, etc.), and the launch of these new projects will further support the buyback plan.
Stablecoin Bill
The "Stablecoin Bill" (GENIUS ACT) is expected to be signed by Trump in July or August. Although this bill mainly targets centralized stablecoin issuers (thus having little impact on decentralized issuers), this policy narrative may bring positive market momentum for MKR/SKY. Industry experts predict that the bill is likely to pass in July or August.
Conclusion
Stablecoins are the future and one of the most profitable projects in the crypto space.
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