My takedown of Maker Dai
Kamakara
31

>The dai is pegged to 0.75 SDR, it may float around that value, but it is obfuscation to say that it is not a peg.

0.75 SDR has occassionally been suggested as the initial “target price” of dai, when the system is launched. However the whole point of the dai stablecoin system is that the target rate fluctuates dynamically to mitigate short term changes in supply and demand. This is the “target rate feedback mechanism” and it exists to improve short term liquidity and allow dai to be free floating and reactive to changes in market conditions. SDR is as such only a reference for external value used for accounting purposes in the smart contracts of the system. What one dai really represents, is a cryptoeconomic claim to a portfolio of highly diversified assets — This portfolio will not just be digital currency, but commodities, fiat currency, and eventually even fully regulated legal securities. The long term goal of the portfolio is simple: maximal global diversification.

The way the price of dai changes over time can be compared to a risk premium. If dai is seen as an unusually risky currency, the “target rate” (rate of change in the target price over time) will be positive, meaning deflationary in terms of purchasing power. If dai is seen as unusually safe, the target rate will be negative, meaning inflationary in terms of purchasing power.

Ideally for the long run, the “external value reference unit” will be a custom CPI basket. In the short run using the SDR as a proxy for average global CPI is more than enough, and upgrading to an expanded basket can be done seamlessly as it becomes necessary.

Btw, you are quoting an old version of the white paper, a lot of the terminology has been changed to improve understanding: https://github.com/makerdao/docs/blob/master/Dai.md

The claim that dai will be long term deflationary has also been removed long ago, as that is entirely a question of supply and demand. My current guess is that the long term steady state price movement of dai will be similar to fiat currencies and obviously reactive to global market conditions as they impact the collateral portfolio.

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