DeFi Hawks With Their +20% Rates, Passive Investing in One Token

Good morning defiers! Here’s what’s going on in the future of money:

  • MakerDAO aggressively raising its stability fee so Dai keeps its peg

  • Traders can buy a single token that will act like a sophisticated investment fund

  • 0x shutdown sparks decentralization debate


MakerDao Hiking Rates Like Crazy

The de-facto central bankers of DeFi are proving to be absolute hawks.

Maker holders voted to raise the system’s so-called stability fee meant to keep Dai’s 1-to-1 peg with the U.S. dollar by 2 percentage points to 20.5 percent just four days ago. Dai is still trading at around 98 cents so another vote is in place to raise the rate again.

The majority of MKR in the vote is being put towards raising the rate an additional 2 percentage points to 22.5 percent. For perspective, that’s higher than the benchmark interest rates of more than 90 percent of the world’s economies, except for inflation-ridden or war-torn countries including Argentina, Turkey, Haiti, Yemen and Venezuela.

It also by far exceeds borrowing rates in other DeFi platforms. The logical market response will be for borrowers to switch to these platforms. This is easy thanks to tools like InstaDapp’s bridge connecting Maker with Compound Finance, where the rate is at around 15.5 percent. And that’s exactly what’s happening, causing Dai supply to decline. The pressure to raise the stability fee should ease as there’s less Dai in the market.

It’s interesting that it’s through these aggressive rate hikes that Dai is being forced to keep its peg, instead of through market demand for the stablecoin. It may be an indication that there’s more risk appetite in the market as traders would rather hold volatile assets like ETH, instead of stable ones.

Like a Token, Combined With a Mutual Fund, Combined with an ETF - With No Fees

There’s an ERC20 token that works like a mutual fund in that it executes a trading strategy, combined with an ETF, in that you only need to hold one asset, except it’s all smart-contracts based so there are no portfolio managers collecting fees.

That’s the idea behind the TokenSets platform, which offers Set tokens representing different trading strategies. The latest strategy, introduced yesterday, tracks ether’s 20-day simple moving average. It automatically sells ether in exchange for stable coin USDC when ETH dips below the 20 SMA indicator, and buys ETH when it rises above it. Tokens are 100 percent collateralized and users custody both the tokens and the collateral.

All that’s needed to buy Set tokens is a MetaMask wallet and there’s no minimum investment required. The platform doesn’t charge any fees, but users will need to pay fees needed to record transactions on the Ethereum blockchain.

Passive strategies like this one have consistently outperformed active strategies in traditional finance, and they’re useful when there’s no proven way to value assets, as is the case with cryptocurrencies.

Rules-based investing isn’t new, and neither is automated trading. What’s different is that anyone can access these more efficient trading tools. No brokerage account needs to be opened, no personal information is handed over, no trading minimum, and no management fees.

Matteo Leibowitz of The Block is betting TokenSets will be the first DeFi product to cross $1 billion in total value locked, and that it’ll get there in less than six months. Would you take the other side?

0x Shutdown Sparks Decentralization Debate

Decentralized exchange 0x temporarily shut down after finding a vulnerability over the weekend, which has since been fixed. This prompted many to ask how decentralized is the platform if the team behind it can do that.

It’s not a trivial question. The ability to run applications with relying in a third party that can be censored, or coerced, or regulated away, is the pillar behind blockchain-based finance. The “De” in DeFi.

Decentralization is a spectrum and there are many things that can determine in what side of it an exchange falls: Does it hold customer funds? Does it have an on-chain order book? Can anyone, anywhere use it? And relevant in this case, are key decisions made by a small, coordinated group of people? 0x is decentralized in many, but not all aspects.

In this very early stage in the development of these platforms, where so many things can break and go wrong, maybe some users will be happy to delegate some degree of control in exchange for keeping a more secure system.


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