Author: Taiki Maeda
Compiled by: Deep Tide TechFlow
In the MKR/SKY report a few months ago, I proposed the restart of the buyback, which would allow it to outperform most crypto assets on a risk-adjusted basis. Since the buyback announcement on February 20:
MKR is up 46% compared to BTC.
MKR is up 70% compared to ETH.
MKR has become one of the few cryptocurrencies with a price increase year-to-date (YTD): +24%.
In this update, I will discuss from three aspects why I believe this trend will continue:
Launch of the SKY staking mechanism
Mandatory migration of SKY tokens (>10% of the supply will be burned)
Mining plan for the SPK token
Introduction of the SKY staking mechanism
Currently, MKR/SKY is a token that uses all protocol revenues for token buybacks. At the current buyback rate, the protocol is buying back about $15 million per month (about $500,000 daily), equivalent to about 1% of the circulating supply being bought back monthly (the highest proportion among all crypto projects).
On April 30, Rune posted a proposal in the forum to launch the SKY staking mechanism. According to the proposal, 50% of the protocol revenue will be distributed to SKY stakers, paid in USDS. This means about $250,000 will be allocated for buybacks daily, and $250,000 will be distributed to stakers.
Assuming 33% of the SKY supply is staked, stakers are expected to receive a staking yield of 7-8%.
Mandatory migration of SKY tokens
In the same update, it was also mentioned that there will be a mandatory migration from MKR to SKY:
Since MKR is one of the earliest ERC20 tokens (launched in 2017), there are bound to be some permanently lost tokens. This could be due to lost private keys, lost wallets, or the death of holders. Through on-chain data analysis, I have identified some 'sleeping MKR tokens' that will inevitably be destroyed from the supply.
Based on reasonable assumptions, for example: 'If there are 23,349 MKR tokens that have not had any transfers in the past 4-5 years, I can assume that about 90% of them have been permanently lost, meaning they will be burned.' Based on these assumptions, I expect about 100,000 MKR will be burned due to migration (approximately 11.4% of the circulating supply). By referencing other cases of lost tokens (such as Aragon DAO), I believe this is a conservative estimate.
Taking the 2023 Aragon DAO token ($ANT) as an example, at that time its trading price was below the treasury value. 'Treasury raiders', or RFVooors, purchase tokens at prices below the net asset value (NAV) and demand redemption of the treasury for profit. This action was successful, and the process of migrating the ANT token to a new token was initiated to redeem the treasury value. During this process, about 27% of the tokens were not migrated, suggesting that these tokens have been permanently lost.
Therefore, I expect that in the coming months or years, 10-20% of MKR will be destroyed, which will support the token price. Additionally, this mandatory migration may prompt more centralized exchanges (CEX) to list SKY, bringing additional positive news.
Launch of the SPK token
Spark is a project that combines lending markets with on-chain asset management, achieving $40 million in revenue in the first quarter of 2023 with almost no incentives. They were able to borrow stablecoins at subsidized rates for SKY, thus allocating capital on-chain.
SPK will be a 'fair launch/mining' token, which users can only mine by staking USDS or SKY (specific economic models can be referenced in related documents). In the first two years of token issuance, 50% of $SPK incentives will be distributed. If we assume a fully diluted valuation (FDV) of $500 million, $250 million of that value will be allocated to SKY/USDS stakers. This not only provides staking rewards for the native token but also promotes the growth of USDS, which will further drive more buybacks in the future.
Additionally, there are other subDAOs or 'star' projects about to launch (such as Solana Star, RWA Star, etc.), which will further support the buyback plan.
Stablecoin Bill
The 'Stablecoin Bill' (GENIUS ACT) is expected to be signed by Trump in July or August. Although the bill primarily targets centralized stablecoin issuers (thus having little impact on decentralized issuers), this policy narrative could bring positive market momentum for MKR/SKY. Industry experts predict that the bill is likely to pass in July or August.
Summary
Stablecoins are the future and are one of the most profitable projects in the crypto space.
