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MKR as Collateral for DAI Proposal, L2 Interoperability Competition Heats Up

Feb 24, 2023
Author
Walter Teng, CFA
Walter Teng, CFA AC
Market Update Traditional markets opened sharply lower today following higher YoY PCE data (5.4% in January vs 5.3% in December). With the Fed looking at PCE as their preferred gauge of inflation, the higher print incites fears that they will likely have to do more to cool price pressures. $SPX and $QQQ have opened and subsequently bled lower from yesterday's close, trading at -1.5% and -2.0% at the time of writing. With correlations to traditional markets tightening again, $BTC and $ETH are also down 2.2% and 3.0% over the last day. Amongst the top 100, $STX has appreciated the most in the past week, gaining 124%. Ordinal NFTs have brought excitement back to the bitcoin space, with Stacks well-positioned as a smart contract L2 to capitalize on it. While $STX has certainly moved, the valuation multiple of $ETH versus its most dominant sidechain $MATIC perhaps suggests that it has more room to go.MakerDAO co-founder Rune proposed for $MKR to be used as collateral for minting its $DAI stablecoin in his Endgame Proposal. The proposal triggered an ambivalent response from the community, given its resemblance to $LUNA/$UST's algorithmic redemption/minting mechanism. If risk-parameterized appropriately (not 100% collateralized), however, the update can be executed a la Frax Financ

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