On-Chain Dynamics of Collateralized Debt Position (CDP) in DeFi
The Collateralized Debt Position (CDP) ecosystem is a cornerstone of DeFi, marrying traditional financial concepts with blockchain technology. Originating from the MakerDAO protocol, CDPs employ a smart contract to lock in collateral in exchange for issuing a stablecoin. In this article, we explore the CDP ecosystem based on our latest Perspective Dashboard.
MakerDAO leads, but it’s not alone
MakerDAO’s MKR token and its DAI stablecoin have been key to the growth of the CDP and broader DeFi market. The success of DAI has contributed to the robust market presence of the MKR token, which is currently the top CDP-related asset in market cap and the only top asset in the CDP ecosystem showing a month-over-month price increase (with a notable 36%).
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But MakerDAO’s is not the only successful protocol in the space. Some notable recent developments in the CDP space are the introduction of Curve’s crvUSD and Prisma’s mkUSD. These stablecoins have rapidly increased their circulating supply, each reaching over 100 million.
The integration with the Curve ecosystem and the implementation of incentive programs have been key to Prisma’s growth, while Curve’s crvUSD has benefited from its soft liquidation model that provides flexibility in collateral management.
Challenges Faced by MIM
Abracadabra’s Magic Internet Money became extremely popular shortly following its launch. However, the stablecoin from Abracadabra.money experienced a significant reduction in circulating supply since then, from over $4.4B in early 2022 to just over $55 million at present. This decline resulted from undercollateralization issues triggered by abrupt asset price decreases, particularly from their native SPELL token.
Despite the modest circulating supply of MIM, the SPELL token still has around 90.000 holders, roughly on par with MKR.
Stablecoin Supply vs. Token Holder
When analyzing the relationship between CDP stablecoin market cap and the number of holders in related protocol tokens, it’s worth noting that a large circulating supply of the stablecoin does not necessarily translate to an increase in users acquiring the native protocol token. While this holds true in general for the CDP category, it is most notable with MKR and DAI. The last two years have seen a large increase in DAI holders (154%) while MKR has only seen marginal increases (23%).
Much of this difference between total holders is due to the larger amount of yield bearing opportunities of stablecoins and as a way to hedge certain risks in a portfolio. While MKR can earn yield if deployed into LPs on AMMS, the core use of it is for governance which interests a smaller pool of users.
Interest in Yield Bearing Stablecoins
A significant factor in the recovery of MKR’s market presence was the introduction of a yield-bearing stablecoin, sDAI. This product accrues interest from Maker’s real-world assets, providing an attractive investment vehicle for those seeking stable and low-risk returns.
In conclusion
The dynamics within this segment of DeFi are complex and continually evolving. MakerDAO’s DAI has remained a leader in the space, thanks to strategic innovations such as sDAI, while newcomers like Curve’s crvUSD and Prisma’s mkUSD are experiencing rapid growth. For a deeper dive into the trends and data, our latest Perspective Dashboard offers a comprehensive analysis. You can access the full dashboard by signing up for a free trial of our pro subscription.
