Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Could Terra’s New Curve Pool Kill MakerDAO’s DAI?

By Crypto BriefingCryptocurrencyApr 12, 2022 01:57AM ET
www.investing.com/analysis/could-terras-new-curve-pool-kill-makerdaos-dai-200621999
Could Terra’s New Curve Pool Kill MakerDAO’s DAI?
By Crypto Briefing   |  Apr 12, 2022 01:57AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Terra’s commitment to creating a new, heavily incentivized Curve Finance pool could pose an existential threat to the once largest decentralized stablecoin, DAI.

Key Takeaways

  • Terra is planning to launch a new, heavily incentivized liquidity pool for its UST stablecoin on Curve Finance.
  • As opposed to the now largest stablecoin pool, 3pool, the 4pool, would exclude DAI and contain UST, FRAX, USDC, and USDT.
  • The explicit goal of Terra's aggressive move is to "starve the 3pool" of liquidity, which could prove a damaging blow to DAI's stability and attractiveness.

Terraform Labs CEO and founder Do Kwon has gone on an open offensive against MakerDAO’s DAI, vowing to starve the competing stablecoin from liquidity and overthrow it for good. Will he succeed?

Terra To Launch An Open Offensive Against DAI

After UST’s market cap grew to almost twice its size, Terra is preparing to deliver another blow to MakerDAO’s DAI.

“By my hand $DAI will die,” Terraform Labs CEO and founder Do Kwon tweeted on Mar. 23. A week later, he followed through on his open-ended threat by introducing the so-called “4pool.” The proposed pool would take the form of a liquidity pool on the largest decentralized exchange for like-valued assets, Curve Finance, and comprise four stablecoins: Terra’s UST, Frax Finance’s FRAX, Tether’s USDT, and Circle’s USDC.

Its goal is to ensure deep liquidity for the now-allied algorithmic stablecoins UST and FRAX and starve the competing decentralized stablecoin DAI for liquidity. In finance, liquidity refers to the quantity of crypto assets available for trading on a particular trading venue. Liquidity is critical because it determines how easily an asset can be traded for other assets without affecting its market price. Deep liquidity allows traders to execute large trades without losing funds to slippage, a phenomenon referring to the difference between the expected and the actual price of a trade.

Shallow liquidity makes trading inefficient and expensive, which repels traders and increasingly dries up liquidity by making liquidity provisioning less profitable for market makers. For stablecoins, liquidity is crucial because it plays a role in their price stability, effectively serving as a backstop to their peg. Stablecoins with lower liquidity can more easily lose their peg as large traders have an outsized influence over their price.

Currently, the largest stablecoin pool is the so-called “3pool” on Curve, which contains USDT, USDC, and DAI and custodies over $3.4 billion worth of assets. So far, the 3pool guaranteed deep liquidity for so-called “whales” or high-net-worth individuals so that they could execute massive swaps between DAI and other stablecoins without incurring slippage or destabilizing its peg.

Terra’s newly proposed 4pool, however, threatens to disrupt this.

Curve Wars Heat Up

As things currently stand, decentralized exchanges ensure liquidity by rewarding liquidity providers with token emissions. In Curve’s case, rewards for liquidity providers come in the form of the exchange’s native governance token, CRV. Through a process known as “vote locking,” CRV token holders can participate in Curve’s governance and control the protocol’s token emissions, meaning they can influence the allocation of rewards so that it goes to specific pools of their choice.

Do Kwon Tweet
Do Kwon Tweet

Terra has recently secured a majority control over Curve’s governance by partnering with Frax, BadgerDAO, OlympusDAO, Tokemak, and the influential meta-governance protocol Redacted Cartel. This means it can influence CRV token emissions and redirect liquidity rewards away from the 3pool toward its own 4pool. As the 3pool is essential for DAI’s liquidity, that’s a bad thing for DAI.

According to Kwon, the explicit goal of this aggressive move is to acquire liquidity for Terra’s flagship stablecoin UST, further assuring its peg in addition to the Bitcoin reserve fund it’s been building. Kwon has gone as far as saying that the “goal is to starve the 3pool.” If successful, that could threaten DAI’s stability and make it less appealing to high-net-worth traders.

MakerDAO, the entity controlling DAI, holds almost no CRV in its treasury and therefore has virtually no influence over the distribution of Curve rewards. To future-proof and secure sufficient liquidity for DAI in the long term, MakerDAO may need to enter the so-called “Curve Wars” by acquiring large amounts of CRV, or opt for other, more expensive ways such as offering bribes or rewarding liquidity providers with its governance token MKR on other decentralized exchanges like Uniswap and Sushi.

However things develop, one thing is certain: Terra has forced MakerDAO on the defensive. The once-largest asset in DeFi is now propelled to innovate in order to survive and stay relevant amid changing market conditions. Although DAI was one of the first decentralized stablecoins to hit the market in December 2017, it has lost its market dominance over the last year to UST. At press time, UST’s market capitalization is around $16.8 billion, almost double that of DAI’s $9 billion, and that’s before 4pool has launched.

Original Post

Could Terra’s New Curve Pool Kill MakerDAO’s DAI?
 

Related Articles

Crypto Briefing
Solana, Avalanche, Fantom Lead Ongoing Market Slump By Crypto Briefing - May 27, 2022

Avalanche, Fantom, and Solana, have posted double-digit losses on the day as the market endures its seventh consecutive month in freefall. Key Takeaways The global cryptocurrency...

AMarkets Company
Bitcoin: Gloomy Times Lie Ahead By AMarkets Company - May 26, 2022

Bearish sentiment in the cryptocurrency market remains at extreme levels. Bitcoin has been edging lower for seven consecutive weeks, which confirms its strong correlation with...

JFD Team
Litecoin Breaks Below 64.35 By JFD Team - May 26, 2022

LTC/USD traded lower today, breaking below the 64.35 barrier, marked by the lows of May 16 and 19. The crypto has been oscillating between that barrier and the 74.10 zone since May...

Could Terra’s New Curve Pool Kill MakerDAO’s DAI?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email