The MakerDAO project has become nothing short of a keystone in the Ethereum decentralized finance arena over the last two years, its builders and community having stewarded the Dai stablecoin and Maker Vaults lending system, one of DeFi’s first breakout dApps, rather excellently to date.
Indeed, Maker’s early successes are why metrics like the Maker Dominance Rate — which tracks how much value is locked as collateral in the project’s smart contracts compared to what’s locked in the rest of DeFi — have become increasingly watched.
It’s also MakerDAO’s rise — namely the rising financial stakes around it — that’s made some Ethereum stakeholders more concerned about the specter of worst case scenarios.
For example, there’s the possibility of bad-faith behavior from MKR whales, as holders with massive enough MKR troves could try to use the governance tokens to burglarize the Maker dApp. Alas, that’s where the new MetaCoin idea comes in: it’s a proposal for a leaner, “governance-minimized” MakerDAO alternative.
A New Coin on the Block
On February 9th, MolochDAO founder and SpankChain CEO Ameen Soleimani published a proposal for a “MetaCoin v0” stablecoin project. Therein, he outlined how MetaCoin could offer a similar but more structurally conservative option to the system underpinning the Dai.
“The goal of such a system isn’t be to usurp DAI’s position as the de facto decentralized stablecoin, but rather to create a safe alternative for those who have different risk preferences,” Soleimani said.
Interested in an alternative to @MakerDAO?
Announcing MetaCoin—The Governance-Minimized Decentralized Stablecoin!
Because money is too important to be left up to humans!
— ameen.eth (@ameensol) February 9, 2020
Accordingly, the main pieces in the MetaCoin model would be a META governance token, like MKR, and COIN as a $1 USD stablecoin analogue to the Dai.
Users could use the ether-only system to lock in ETH to draw out over-collateralized loans in COIN. MakerDAO allows ETH, Basic Attention Token (BAT), and likely more assets later, as collateral.
Yet among other things, MetaCoin would be distinct from MakerDAO in two key ways.
The Idea? Leaner, Smaller Attack Surface
MetaCoin’s two main differences with MakerDAO have to do with 1) its proposed reliance on an indirect system for price oracles, and 2) an algorithmic mechanism to maintain COIN’s $1 peg.
In MakerDAO, price oracles are a matter of direct governance — in other words, MKR holders can vote on them. Soleimani has proposed a more indirect system for MetaCoin, one that involves META holders voting on a basket of USD stablecoins to provide reference prices:
“In MetaCoin, the governance system does not select price oracles directly. Instead, the governance selects several fiat-backed stablecoins (i.e. USDC, USDT, TUSD), and then uses the volume-weighted average price of that basket on [the decentralized exchange Uniswap] to determine the reference price of ETHUSD.
Beyond voting on an emergency shutdown then, MetaCoin users would only face governance when it comes to determining this basket. Here, the structural reliance on Uniswap makes for an interesting design; Soleimani noted it should provide even more utility and make things “easier” in time as the DEX’s coming v2 upgrade was “set to launch with moving-average calculations built-in.”
As far as peg dynamics go, MakerDAO charges Maker Vault users a variable interest rate to mint Dai, and MKR holders manually and routinely vote to determine this rate — the so-called Dai Stability Fee (DSF) — to keep economic conditions ripe for a $1 peg. In contrast, MetaCoin would make use of an automated “control loop mechanism” to determine its own variable interest rate, Soleimani said:
“The … controller is be implemented as a smart contract that takes the current price of COIN, compares it to the volume-weighted average price of the stablecoin basket (used as a reference point for $1), and automatically updates the interest rate based on the difference.”
Ultimately, the MolochDAO founder concluded that it was far from certain that the MetaCoin effort would “result in a widely adopted and long-lived stablecoin,” but it notably already offered a “new template from which communities can launch their own stablecoins with minimal overhead.” It’s a project to watch accordingly.
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