📌 [Analysis] Maker Dai: Stable, but not scalable - Su Zhu and Hasu

While Maker's decentralized Ethereum ($ETH) backed Dai stablecoin has successfully proven itself to withstand a decline in the price of ETH it is not scalable according to Su Zhu and Hasu. The authors argue the dynamics of the Maker model make it inefficient to arbitrage in the Dai ecosystem, potentially leading to an imbalance between supply and demand, and a deviation from Dai's dollar peg. This is primarily related to the requirement create collateralized ETH contracts in order to create new Dai, and for arbitragers that means needing to find a way to later liquidate a contract after creating new Dai. Other stablecoins, like those that are backed by fiat currency, represent a more efficient arbitrage opportunity for traders because there is no need for over-collateralization and the creation and withdrawal mechanisms create less friction. Despite this, Zhu and Hasu argue that perhaps a scalable stablecoin isn't the true value of Maker, but instead it is to generate censorship resistant stability for anyone holding a volatile censorship resistant asset.

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