Original Title: Bull Case for MKR/SKY - Q2 Update
Original Author: Taiki Maeda
Original Translation: Shen Chao TechFlow
In a MKR/SKY report a few months ago, I suggested that the restart of buybacks would allow it to outperform most crypto assets on a risk-adjusted basis. Since the announcement of the buyback on February 20:
· MKR increased by 46% compared to BTC.
· MKR increased by 70% compared to ETH.
· MKR has become one of the few cryptocurrencies with a year-to-date (YTD) price increase: +24%.
In this update, I will discuss three aspects of why I believe this trend will continue:
1. Launch of the SKY staking mechanism
2. Mandatory SKY token migration (>10% of the supply will be destroyed)
3. SPK token mining plan
Introduction to 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 buys back about $15 million per month (approximately $500,000 daily), which is about 1% of the circulating supply bought back monthly (the highest proportion among all crypto projects).
On April 30, Rune posted a proposal on the forum to initiate the SKY staking mechanism. According to the proposal, 50% of the protocol revenue will be allocated to SKY stakers, paid in USDS. This means about $250,000 daily will go towards buybacks, and $250,000 will be allocated to stakers.
Assuming 33% of the SKY supply is staked, stakers are expected to receive a staking yield of 7-8%.
Mandatory SKY token migration
In the same update, it was also mentioned that there will be a mandatory migration from MKR to SKY:
Since MKR is one of the earliest ERC20 tokens (launched in 2017), there are inevitably some permanently lost tokens. This may be due to reasons such as lost private keys, lost wallets, or the death of holders. Through on-chain data analysis, I have identified some 'dormant MKR tokens' that will inevitably be destroyed from the supply.
I based my assumptions on reasonable premises, such as: 'If there are 23,349 MKR tokens that have not transferred in the past 4-5 years, I can assume that about 90% of them have been permanently lost, meaning they will be destroyed.' Based on these assumptions, I expect about 100,000 MKR to be destroyed due to migration (approximately 11.4% of the circulating supply). By referencing other lost token cases (like Aragon DAO), I believe this is a conservative estimate.
Taking the Aragon DAO token ($ANT) in 2023 as an example, its trading price was below the treasury value at the time. 'Treasury Raiders' or RFVooors buy tokens below the net asset value (NAV) and request redemption of the treasury for profit. This action was successful, leading to the initiation of the ANT token migration process to a new token to redeem the treasury value. During this process, about 27% of the tokens were not migrated, which can be inferred 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 encourage more centralized exchanges (CEX) to list SKY, which will bring additional positive effects.
Launch of 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 for SKY at subsidized rates, thus allocating capital on-chain.
SPK will be a 'fair launch/mining' token, and users can only mine it 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 allocated. If the fully diluted valuation (FDV) is assumed to be $500 million, then $250 million of that value will be allocated to SKY/USDS stakers. This not only provides staking yields for the native token but also promotes the growth of USDS, which will further drive more buybacks in the future.
In addition, there are other sub DAOs or 'star' projects about to launch (such as Solana Star, RWA Star, etc.), and the launch of these new projects 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 may 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 one of the most profitable projects in the crypto space.
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