MakerDAO Q1 2019 Revenue Analysis

An update on MakerDAO revenues and redistributions

Earlier this year, I published “MakerDAO 2018 Revenue Analysis”, a post describing the mechanics by which MakerDAO is generating and redistributing revenues to MKR holders, PETH holders and keepers. As a follow-up, I’ll examine the MakerDAO revenues for the first quarter of 2019.

There is no reason for MakerDAO to publish quarterly revenue statements: after all, all the “books” are available on the Ethereum blockchain for everyone to review in real time, but periodically comparing how things are evolving allows us to put numbers in context.

Methodology

First, a quick reminder of our methodology.

The list of all transactions calling the various Single-collateral DAI and MakerDAO contracts was generated using a custom data scraper to parse the Ethereum blockchain. The data was then augmented with ETH and MKR prices as recorded by the MakerDAO Oracle, allowing a conversion of all amounts to DAI at the time of the transaction. The use of DAI as a unit of account removes the volatility of ETH and MKR and simplifies analysis. We will assume that 1 DAI = 1 USD; even though its value fluctuated this quarter between 0.94 USD and 1.02 USD.

For detailed explanations of the different notions used (e.g. Stability Fees, Accrued vs Realized Fees and Liquidation Penalties), I’m inviting you to consult my previous post, “MakerDAO 2018 Revenue Analysis”, in which I describe in detail the conventions that I’m following.

Q1 2019 Revenues

Stability Fees

During this quarter, the Stability Fee charged to CDP owners increased dramatically, starting at 0.5% at the beginning of the year, up to 7.5% at the end of the quarter.

Stability Fees for Q1 2018

At the same time, DAI supply increased consistently, up to a record of 95M DAI. In anticipation and as a consequence of the last stability fee increase (from 3.5% to 7.5%), the supply contracted significantly, but still finished 27% higher than the beginning of the quarter.

DAI Supply for Q1 2018

These two factors explain the significant increase in the accrual of stability fees.

Accrued Stability Fees, by week, in Q1 2019

As stability fees are not paid until a CDP debt is repaid, only a portion of the stability fees were actually collected during the quarter. Also, stability fees are foregone in the case of CDP liquidation, but these write-offs were not significant.

During the quarter, the sum of unrealized stability fees increased to 541K DAI (worth 762 MKR as of March 31st). The 399K DAI that MKR holders made in Q1 is more than the double of what they made in all 2018 (183K DAI).

Liquidation Penalties

Things were relatively quiet on the CDP liquidation front, as only 582 CDPs with an average debt of 3 267 DAI were bitten. The relatively low volatility of the collateral (Ether) after a sharp increase at the end of Q4 2018 helped the management of CDPs.

Liquidation penalties (in DAI)
Ether prices during Q1 2019

During the quarter, 64K DAI were given in discounts to keepers, and 4K DAI were lost in collateral depreciation. Overall, these liquidation operations generated a 178K DAI surplus.

Distributions of Revenues and Surplus

MakerDAO, the DAO, does not have expenses at this stage. The Maker Foundation pays all development, research, marketing, and legal expenses. As the MakerDAO isn’t keeping reserves, all revenue and surplus are immediately redistributed.

MKR Redistribution (Stability Fees)

During the quarter, 186.4 MKR were paid in stability fees and burned in the burner contract.

At the end of the quarter, unrealized stability fees amounted to 541K DAI, worth, at the end of the quarter, 762 MKR.

PETH Redistributions (Liquidation surplus)

The surplus from liquidations amounted to 178K DAI, and was redistributed to PETH holders through buying PETH with DAI and subsequent burn. A 3% discount is given to keepers to facilitate this process.

At the beginning of the quarter, 1 PETH was worth 1.0402 ETH, and thanks to the PETH burning, the same PETH was worth 1.0409 ETH at the end of the quarter.

Who benefited the most?

While in 2018, PETH holders made 69% of the revenue, the situation reversed in Q1 2019 due to the drop in CDP liquidations and the increase of the Stability Fee.

Revenue and surplus distribution (in DAI)

Conclusion

It is important to remind that the upcoming Multi-collateral DAI upgrade will significantly alter the MakerDAO revenue and expense structure. PETH redistribution will be eliminated and the MakerDAO will begin to have direct expenses, including an interest rate paid to DAI holders: the DAI Saving Rate.

The first quarter of 2019 was one of the most interesting in MakerDAO’s history. After successfully withstanding a 95% drop in value of its Ether collateral in 2018 by charging a very low Stability Fee (0.5%), Single-collateral DAI faced for the first time in this quarter, the prospect of a new bull market and its impacts on DAI value. The nascent MakerDAO governance took drastic decisions regarding the Stability Fee (15X increase to 7.5%), and this had a positive outcome for MKR holders.