MakerDAO’s DAI Could Pose An ‘’Existential Risk’’ To ETH DeFi

According to Adam Cochran and his Twitter thread, it seems that MakerDAO’s DAI could pose a huge threat to the Ethereum DeFi space. There was no other decentralized finance product that did well as MakerDAO did so let’s see what is this all about in our Ethereum news today.

According to the DeFiPulse site, the project seems to dominate the open finance ecosystem with almost 55% dominance in terms of value locked-in contracts. MakerDAO’s DAI did well and its governance token MKR managed to gain the support of some of the biggest venture capital companies, Andreessen Horowitz, which purchase a huge chunk of the tokens back in 2018.

However, a new analysis by Adam Cochran, DAI, the stablecoin that is behind the MakerDAO protocol, presents the ‘’biggest existential threat to DeFi.’’ Cochran is a partner at Metacartel Ventures and a professor at the Conestoga Collage. He released a Twitter threat on why he believes that DAI might be in danger.

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3 Reasons Why $DAI is DeFi's Biggest Risk:

I was huge into MKR when in first launched.

It made sense – a project where we could use ETH, the asset that all chain participants believed in, to back a stablecoin.

But, for the last 8~ months, I've taken a lot of flack for pic.twitter.com/uV9GMVSrm7

— Adam Cochran (@AdamScochran) April 21, 2020

First, he explained that all DeFi protocols whether is Fulcrum, SET, Uniswap, Compound, or Aave, are mostly focused on DAI because as he calls it, it is the financial house of cards. His idea is that DAI is the core of the DeFi system which is what makes it susceptible to multiple risks. He pointed out that a DForce attack could happen where a glitch in one token supported by the platform will result in all of the cryptocurrency on DForce’s Lendf.me getting stolen.

Second, MakerDAO is not decentralized according to him. He believes that MKR is owned by a16z which is the Maker team and other investment groups that hold the ‘’invisible hand’’ risk to DAI. He didn’t say that the holders are doing anything wrong and are acting against the community, but he did draw attention to the power struggles within the platform that could pose a risk to the protocol in the future.

Finally, DAI is at risk because of the DAI setup which means that the stablecoin is backed by Ether but by other coins as well such as the USD Coin and the Basic Attention Token. These tokens have huge volatility and could ‘’fail’’ which will be a potential risk for the rest of the Maker space.