In a few months ago's MKR/SKY report, I proposed that the restart of buybacks would allow it to outperform most crypto assets on a risk-adjusted basis. Since the buyback was announced on February 20:
· MKR increased by 46% compared to BTC.
· MKR increased by 70% compared to ETH.
· MKR is one of the few cryptocurrencies that has increased in price year-to-date (YTD): +24%.
In this update, I will discuss why I believe this trend will continue from three aspects:
1. Launch of SKY Staking Mechanism
2. Forced SKY Token Migration (>10% of the supply will be destroyed)
3. Mining Plan for SPK Token
Currently, MKR/SKY is a token that uses all protocol revenue to buy back tokens. At the current buyback rate, the protocol is buying back about $15 million monthly (about $500,000 daily), which amounts to approximately 1% of the circulating supply per month (the highest among all crypto projects).
On April 30, Rune published a proposal on the forum to launch the SKY staking mechanism. According to the proposal, 50% of the protocol revenue will be allocated to SKY stakers, paid in USDS. That is, about $250,000 daily will be used for buybacks, and $250,000 will be allocated to stakers.
Assuming 33% of the SKY supply is staked, stakers are expected to earn a staking yield of 7-8%.
Forced SKY Token Migration
In the same update, it was also mentioned that there would be a forced migration from MKR to SKY:
Since MKR is one of the earliest ERC20 tokens (launched in 2017), there are inevitably some permanently lost tokens. This could be due to lost private keys, lost wallets, or the death of holders. Through on-chain data analysis, I have identified some 'sleeping MKR tokens' that will inevitably be destroyed from the supply.
Based on reasonable assumptions, for example: "If there are 23,349 MKR tokens that have not transferred in the past 4-5 years, I can assume that about 90% of them have been permanently lost, meaning they will be destroyed." Based on these assumptions, I expect about 100,000 MKR to be destroyed due to migration (approximately 11.4% of the circulating supply). By referencing other cases of lost tokens (such as Aragon DAO), I believe this is a conservative estimate.
Taking the Aragon DAO token ($ANT) in 2023 as an example, it was trading below its treasury value. 'Treasury raiders' or RFVooors bought tokens below the net asset value (NAV) and demanded redemption of the treasury for profit. This action was successful, and subsequently initiated the process of migrating ANT tokens to new tokens to redeem the treasury value. In this process, about 27% of the tokens were not migrated, implying 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 provide support for the token price. Moreover, this forced migration may encourage more centralized exchanges (CEX) to list SKY, which will bring additional benefits.
SPK Token Launch
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, which users can only mine by staking USDS or SKY (specific economic model can refer to related documentation). In the first two years of token issuance, 50% of the $SPK incentives will be allocated. If the fully diluted valuation (FDV) is assumed to be $500 million, of which $250 million in value will be allocated to SKY/USDS stakers. This not only provides staking yield for the native token but also promotes the growth of USDS, and the growth of USDS will further drive more buybacks in the future.
Additionally, other sub DAOs or 'star' projects are about to launch (such as Solana Star, RWA Star, etc.), and the introduction 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 this 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 expected to pass in July or August.
Summary
Stablecoins are the future and are one of the most profitable projects in the crypto space.
