This article is from "Reconciling the two opposing paths for Decentralized Stablecoins" & "PureDai: Returning to the ideological roots of Dai"
Author: Rune Christensen
Translated Text: "How to compile: Odaily Planet Daily"
This article combines two articles by Rune Christensen, the founder of MakerDAO, on the future expansion of Dai. Starting from the trilemma of stablecoins, it explains how Dai achieves two-way "guidance" in the Endgame transformation plan, namely the decentralized stablecoin brand NewStable (specific name not yet released) and PureDai. The specific development plans for these two different brands are also disclosed.
The following is the original text related to the development direction of Dai in two articles, compiled by Odaily Planet Daily.
Please note that the translation is in English.
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When the Dai plan begins to expand, it faces two dilemmas in the development of stablecoins. One is whether it can be rooted in the pure decentralized culture of cryptocurrencies, and the other is how to achieve the original intention of Dai - mass adoption. However, these two directions are fundamentally conflicting, as described in the "Stable Coin Trilemma", it is impossible to simultaneously achieve USD pegging, maintain pure decentralization, and scale massively.
MakerDAO: Since a single stablecoin brand cannot solve the trilemma, let's launch two brands.
MakerDAO believes that there are two main paths to solve the three difficulties of stablecoins: prioritize utility and scale, and pursue a purely decentralized path.
- Prioritize utility and scale: This choice includes USD-pegged and Real-World Assets (RWA) collateral, which requires integration with TradFi and alignment with real-world entities.
- Going the purely decentralized path: This path requires completely abandoning centralized control and relying strictly on decentralized collateral. Although the traditional view suggests that achieving significant growth is more challenging when prioritizing decentralization, the Maker community has always believed in the potential of this approach and there is a certain demand for this type of stablecoin.
The transition to the dual stablecoin solution of Dai should be a gradual and cautious process, which may take several years to complete the transition.
NewStable will inherit most of Dai's use cases and will focus on mass market adoption and compliance with regulatory requirements for real-world asset support, while maintaining a level of decentralization to ensure transparency, resilience, and checks and balances in the stablecoin system.
At the same time, Maker will provide a second purely decentralized stablecoin called PureDai for users who prefer the vision of pure decentralization to choose from.
From the perspective of MakerDAO's decision-making in the face of the triple dilemma of stablecoins, stablecoins need to expand on a large scale and introduce new users, which inevitably requires a connection with the real-world fiat currency. However, at the same time, decentralization will be greatly weakened. Therefore, MakerDAO has found two solutions by adopting two different stablecoin brands, covering all the different needs faced in the triple dilemma of stablecoins.
NewStable complies with regulations
NewStable will be the main successor of Dai, focusing on rise, yield, and security. NewStable will follow the trajectory of Dai, focusing on utility and adoption, and all features will be customized around this goal. NewStable will be a decentralized stablecoin, aiming to achieve security and transparency by making its governance and infrastructure as secure and transparent as possible.
Freeze Function: In order to ensure NewStable can scale globally in a secure manner, it will eventually be upgraded with a freeze function similar to other major RWA-backed stablecoins. The freeze function will not be implemented at the launch of NewStable, but the token will be upgradable to enable its implementation through governance voting at a later stage.
Dai's liquidity and integrated backend: Dai will continue to operate as it currently does, and if there are any questions, Dai users can continue to hold their Dai. NewStable will take over the RWA and TradFi integration of Dai, deepen and improve these integrations, and make them more robust over time through its resilient and decentralized governance process and transparent infrastructure.
Regarding the specific details of NewStable, Odaily Planet Daily has previously reported on it. For more information, please refer to the article "The Road to Self-Rescue of the Long-standing DeFi Project: Analyzing MakerDAO's Endgame Transformation Plan".
PureDai focuses on Decentralization
PureDai aims to achieve an idealized version of Dai that many Maker community OGs and Ethereum cypherpunk idealists have long desired. The changes brought by Endgame and the specific development needs of NewStable mean that this vision can now be realized without compromise.
PureDai's goal is to create a truly decentralized stablecoin that relies entirely on decentralized collateral and extremely decentralized measures. Its main features include: freely floating target price, highly decentralized collateral, maximally decentralized oracle machine, PureDai's tokenomics governance token, permanent issuance to the PureDai treasury, PureDai governance token burning engine and backing, as well as SubDAO linkage.
Free Floating Target Price
PureDai adopts a mechanism of free-floating peg because it cannot rely on RWA to maintain its peg to the US dollar. Negative interest rates may be necessary to ensure price stability. This mechanism is similar to decentralized stablecoins such as RAI and HAI.
Existing Dai users can choose to upgrade their Dai to PureDai if they appreciate its extreme resilience and decentralization achieved through uncompromising design trade-offs. Advanced stablecoins such as LUSD attempt to achieve a rough peg to the US dollar without the need for a freely floating target price. PureDai may draw inspiration from these innovations, but a freely floating peg is always a possibility and should be the default expectation for users in the long term.
Highly Decentralized Collateral
PureDai is currently planned to only use ETH and stETH as collateral in the early stage. ETH is considered the ultimate decentralized collateral, while stETH improves economic efficiency through Lido's decentralized infrastructure. PureDai's minimal governance will be able to take stETH offline when necessary and may list other liquid collateral ETH tokens that meet PureDai's high standards.
PureDai will launch a DeFi lending platform to maximize the generated amount of PureDai.
Maximized Decentralization Oracle Machine
PureDai needs to maintain liquidity in three AMM pools: ETH/PureDai, stETH/PureDai, and NewStable/PureDai. A portion of the surplus revenue from the PureDai protocol will be introduced into these three AMM pools to ensure their growth over time. The ETH and stETH AMMs are used to generate time-weighted oracle prices for collateral prices in the system's liquidation calculations. The NewStable/PureDai AMM is used to determine the target interest rate.
Governance Token Economics of PureDai
PureDai will have its own governance token, with an initial supply of 2 billion PureDai governance tokens. The initial supply will be allocated to NewStable stakers on the Ethereum mainnet over a period of 5 years. PureDai will not be a SubDAO, as its own governance infrastructure will be completely independent of MakerDAO.
PureDai's initial distribution of governance tokens helps to ensure that Maker's incentive mechanism remains consistent when building and releasing PureDai, and ensures that ownership of PureDai governance tokens is widely distributed without any entry barriers.
Permanently distributed to the PureDai treasury.
To borrowers who use the PureDai vault to expand the supply of PureDai, permanent issuance is offered, which may support higher PureDai demand and growth without the need for negative target interest rates. This mechanism means that all PureDai vaults will have two options: one is for users to only pay the normal stability fee, and the other is to pay a higher stability fee but in return receive PureDai governance tokens.
PureDai governance token burning engine and backstop
PureDai will use surpluses to accumulate, market make and burn PureDai governance tokens. If the bad debt generated from failed liquidation auctions exceeds the accumulated amount of PureDai in the surplus buffer of PureDai, new PureDai governance tokens will be issued to attempt to recapitalize the system.
Interconnected with SubDAO
SubDAO ecosystem will be very suitable for the users of PureDai and build applications on top of it to ensure it has enough legitimate use cases and take advantage of the arbitrage opportunities that arise in such a system. Spark may play an important role in the growth and efficiency of PureDai.
PureDai may be launched after the first three SubDAOs are launched, but the exact order and timing may vary. By introducing PureDai, the Maker community will be able to provide a truly decentralized, resilient, and simple stablecoin product.
Summary
After the launch of PureDai, Dai users will have two complementary options: upgrading Dai to NewStable, leveraging its USD peg and yield features; or upgrading Dai to PureDai, enjoying the advantages of its fully decentralized collateral. Eventually, Dai is expected to be completely deprecated, and all Dai users and integrations will migrate to NewStable or PureDai.
MakerDAO's launch of the dual stablecoin project can not only achieve current growth and revenue goals, but also ensure the continuation and strengthening of the core value of decentralization in future stablecoin solutions. This process will be a journey full of challenges but also opportunities.