Since the cryptocurrency has accelerated its pace, a major investment made by Andreessen Horowitz in a cryptocurrency project that algorithmically adjusts the supply of coins to keep their value stable.
The U.S. based venture capital firm has invested in two crypto startups naming CryptoKitties and OpenBazaar in the past by buying 6 percent of the total supply of MKR tokens through its $300 million crypto fund in place. The fund has acquired to invest a total of $15 million to the MakerDAO project and considered it as their investment as a “strategic acquisition.” By holding MKR tokens as it will offer a16z the rights to govern MakerDAO and the Dai Credit System, it is expected to be the first decentralized autonomous stable coin organization.
With this, the Dai Credit System focuses to handle a decentralized stablecoin naming Dai using smart contracts running on the Ethereum blockchain. The self-governing ecosystem builds the durable token especially when people secure their assets to take a loan. Dai becomes the central cryptocurrency to indicate the loan amount that is quite similar to the USD value of the collateral deposit.
According to 16z, it profusely stated that “A set of autonomous smart contracts coordinates and runs the Maker system, which means that anyone with an internet connection and collateral can create Dai without the need for trusted intermediaries.” Further speaking to the subject matter, it said: “to ensure the system remains solvent, a network of market makers is incentivized to liquidate loans that risk becoming undercollateralized, thereby removing excess Dai from circulation and keeping the balance of Dai to collateral in check.”
Besides this, a general partner at Andreessen Horowitz, Katie Haun said in a press statement that “the future economy would belong to decentralized stablecoins.” Amid this, the former federal prosecutor expected to have led an investigation into Mt. Gox and Silk Road, two of the most high profile criminal cases in the crypto industry’s history so far, acknowledged MakerDAO for being a “first mover and innovator” in the flourishing stable coin industry.
Additionally, Haun’s confidence in the MakerDAO project could be concerned with the general complexities of traditional cryptocurrencies only for price instability. A recently-published blog post by 16z’s, Haun argued that volatility in the crypto market had been due to their dismissive adoption rate. However, when it comes to lending, one of the critical working areas of MakerDAO, Haun along with co-author, Jesse Walden, said in their statement that “making a long-term loan in bitcoin would not be practical because of two underlying risks such loans pose.” Further, they said, “First that the loan would be repaid, and second, whether the bitcoin would be worth more or less at the time the loan came due.”
In a nutshell, the Dai token is itself supported by ether (ETH), another renowned cryptocurrency that has lost 80 percent of its value against the U.S. dollar this year alone. However, to ensure the estimation does not rely on only one cryptocurrency as MakerDAO actively focuses to introduce a diverse basket of collateral types containing fiat-backed stablecoin and tokenized equities.