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The Defiant

03/16/2022

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Proposal Aims to Shake up MakerDAO’s Tokenomics and Light a Fire Under MKR

A new proposal takes aim at the disparity between MKR and DAI.

Proposal Aims to Shake up MakerDAO’s Tokenomics and Light a Fire Under MKR

Utility doesn’t always lead to value.

That’s the hard lesson holders of MKR, the token of MakerDAO, have been learning in the past year. MKR has dropped 11% in the last 12 months  even as DAI, the protocol’s stablecoin, has increased by a multiple of 3.5 times. 

Now there’s a new proposal kicking around Maker’s forums that aims to do something about this disparity. While it isn’t explicitly designed to increase MKR’s price, the idea may shake up the project’s oft-criticized tokenomics, according to monetsupply, the proposal’s author.

Increasing Price

At a high level the proposed change entails adding a staking functionality for MKR tokens. So when a user stakes MKR, they will get stkMKR, a token which will accrue fees in the form of additional MKR. 

The proposed mechanism change for Maker.

The fees will come from the DAI, which users must pay back as interest for borrowing on Maker. Normally they are used to buy back MKR on the open market and burn it, thereby reducing token supply and theoretically increasing its price. Under the new proposal some of that bought-back MKR will return to stkMKR holders instead. 

Monetsupply doesn’t explicitly say the proposed mechanic would lead to an increase in MKR’s price, but the Risk Core Unit team member does think the changes would lead to a change in how the token is perceived.

“While in my opinion tokenomics should not be focused on price impacts, positive narrative shifts benefit the protocol by making MKR issuance for hiring, capital raising, and user incentivization more efficient,” monetsupply wrote in the proposal. 

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The author added that the changes would enable an APR to be associated with MKR, which might allow people to think about the token more favorably. After all, OlympusDAO’s APR became a meme which practically sold the project.

Maker’s MKR token’s price action has been a bit of a mystery. The project is broadly accepted as DeFi’s oldest protocol with arguably the most effective transition to full decentralization in crypto. Yet like much of DeFi’s “Blue Chips,” Maker has a token that has rarely captured the imagination of crypto investors. 

The proposed revamp may give the MKR token the boost it needs, even if only in terms of public perception rather than a true increase in value accrual. That’s the idea, anyway.

Protocol Changes

Monetsupply hit on a couple of other reasons to divert some of the interest the protocol charges towards return tokens to stkMKR holders. Only those who stake MKR will be able to vote; the additional fees could also incentivize governance participation. 

The proposal also introduced an “unbonding period,” which basically would entail a period of time — 21 days, perhaps — users would have to wait when they wish to withdraw their stkMKR and collect their fees. This could potentially deter people from buying MKR tokens to vote on a specific topic, only to quickly sell their tokens. 

To be sure, monetsupply’s proposal is still only on Maker’s forums, meaning it’s not up for votes yet. Members actually rejected another proposal last year, Maker Improvement Proposal 49, that would modify MKR’s tokenomics, meaning this current attempt is far from a shoo-in.

Still, monetsupply works for Maker so the anonymous contributor is coming in as a deeply informed participant in governance. The proposal has at least one influencer’s support:  It “sounds like [a] very based proposal, will support with my micro MKR vote,” tweeted Fiskantes, the popular crypto personality.

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