I would say that it depends on how MakerDAO’s stablecoins are used in the wider ecosystem, which is not yet well established. Based on the uses/discussions we can be currently (page 12-13 of the following StableCoin report present useful discussion https://www.blockchain.com/ru/static/pdf/StablecoinsRepotFinal.pdf ), MakerDAO could be used:
- For getting longer exposure to Ether – A borrower wanting to get longer exposure to Ether could deposit Ether as collateral in the MakerDAO system to borrow Dai in return, which can be subsequently be used to purchase more Ether at an exchange. This could be desirable because the borrower expects the value to go up in the future, and the MakerDAO system allows the borrower to access leverage, and realise gains from appreciation with minimal investment.
Value Added: If the Ether does indeed appreciate, this adds wealth to the borrower which can subsequently be used to purchase other goods. Alternatively, the long exposure can be used to hedge against assets which are either uncorrelated or negatively correlated to the price of Ether –protection against future uncertainty could be seen as a value add as well. This does however require Ether’s price/value to settle on fundamentals (currently not the case), so that decision making does not dissolve into a pure betting exercise.
- As Universal Medium of Exchange – Some businesses may find it expensive to accept payments in fiat, especially if cross border payments are concerned - crypto currencies have been cited as solutions to stimulate international trade. Traditional businesses at present would take a significant risk accepting cryptocurrencies as a medium of exchange due to the significant volatility of this asset class. As a stable coin, under the right conditions, Dai could serves as a medium of exchange that allows merchants to transact with more consumers.
Value Added: Costs add friction to transactional exchanges, so its absence will encourage stimulate trade, which adds value to both the merchant and the end consumer.
- To allow DApps to distribute value – Existing Decentralised Applications could also require a price stable currency to enable exchanges between DApp participants.
Value Added: The mechanism through which value is added to end participants would be same as that of a universal medium of exchange. However, the prevalence of stablecoins could also encourage investment in DApps (which require price stable assets as a pre-requisite) - this will enable formation, and consumption of new set digital goods and services, so the value added could potentially be greater.
I would also distinguish between
- value being consumed privately
- value being consumed by ecosystem as a whole
- value that contributes towards human welfare
…and these would need to be considered separately, and may not always be aligned. E.g.:
If we take use case 1, borrowers could argue that the opportunity to get longer exposure to Ether, irrespective of whether if creates wealth or not, is a service a service they get value from privately, and the system lower the barriers to access capital which allows them to get exposure.
This can, however, encourage speculators, who subsequently utilise the new found leverage to generate buying demand on Ether which drives up prices, and move it further away from its fundamentals. Ultimately, as the price corrects, and Ether comes tumbling down, the reputational damage suffered can create knock on impact on other unrelated DApp projects. These may either have relied on Ether for funding and suddenly see their capital diluted, or find harder it to obtain new funding from investors who become more risk averse. This generates negative value for the wider ecosystem, and the net welfare impact generated by MakerDAO remains uncertain. This phenomenon has already been observed, even prior to MakerDAO’s emergence.
The general framework does have a lot in common with the narrative that explains asset bubbles, and especially the 2008 financial crisis. Growth of financial innovation (e.g. complex securities such as CDOs, CMOs) that predated the crisis generated an unsustainable credit boom which was heavily invested in existing real estate, and caused prices to accelerate sharply in developed nations. When the real asset prices (and the debt that fuelled it) proved unsustainable, the subsequent debt overhang resulted in prolonged recessions that economies are still struggling to recover from.
On Ether as the dominant commodity money: I think that Ether’s chances of establishing itself as the commodity money of choice would depend less on MakerDAO’s approach to managing collateral, and more on Ether’s tendency to retain its purchasing power. If it serves as a good store of value, it could dominate the reserve composition even after MakerDAO adopts a multi-collateral approach.