Another #FreeLoveFriday. So far, I’ve covered Bitcoin, Mastercoin/Omni, and last week ChainLink and the importance of decentralized oracles. Today, let’s talk about one of the most fascinating projects in crypto - @MakerDAO

In my thread about Mastercoin, I briefly touched on the vital role fiat-backed stablecoins play in crypto markets, but there’s a catch with them:

The counterparty risk of a third-party holding fiat in reserves.
Enter MakerDAO, which set out to create a decentralized, collateral-backed cryptocurrency, DAI, that would be “soft-pegged” to the U.S. Dollar using the power of algorithms. In crypto tradition, its supporters said trust game theory, not operators.
In 2017, MakerDAO published a whitepaper describing a system where anyone could create DAI by leveraging ETH as collateral to create Collateralized Debt Positions. Essentially, you take out a digital USD loan against your crypto.
The game theory of the system is structured such that DAI issuance is controlled to keep the price pegged to $1.00. In essence, it buffers the fluctuations of the underlying collateral to create a synthetic dollar bill.
This obviates the need for a backing bank, or fiat in reserve, or any kind of dependence on fiat, save as a unit of account.
In 2019, the project innovated further to accept forms of collateral beyond just ETH. Now, there’s a whole ecosystem built on MakerDAO’s governance, including the DAI stablecoin, collateral vaults, and oracles.
While DAI seems to be similar to USD, it offers advantages that fiat cannot match. Namely, it is trivial to send even large quantities. No need for costly and slow bank transfers. So that’s why the price for DAI sometimes even exceeds its peg of $1.00.
Admittedly, it took me a while to understand exactly how Maker works -- our paper on the taxonomy of stablecoins sheds some light on its internals. It’s always amazed me how stable DAI has stayed over the years.
https://t.co/Pz3BkJLUM7
My greatest worry about algorithmic stablecoins like DAI had been the game theory. They work well as long as demand has them operating at or above $1.00, but the dynamics of when they fail are not well understood.
But last March, we saw that the biggest threat to the stable value of DAI isn’t governance, but the constraints of its underlying network.
As the Covid-19 pandemic triggered a meltdown of the traditional financial markets, a liquidity shock rang throughout the crypto markets. Ethereum network fees were outrageously high, and that’s if you could get a transaction confirmed.
You’ll recall, DAI is a collateralized product. If you can’t sufficiently re-capitalize your position as the price of your collateral plummets, the Maker contract follows its rules and liquidates your position.
It was sad to see people losing their money & being turned away from crypto. It was also disappointing to see an innovative project take a reputational hit for circumstances that were out of their immediate control.
I’m certain that the MakerDAO ecosystem will continue to innovate and seemingly make magic happen with math. I’m also curious to hear what you all and @RuneKek want to see built around MakerDAO next.

More from Bitcoin

The defi matrix

As each asset class goes on-chain, it can be stored in a digital wallet. And it can be traded against other such assets. Not just cryptocurrencies, but national digital currencies, personal tokens, etc.

We’re about to enter an age of global monetary competition.

The defi matrix is the table of all pair wise trades. It’s the fiat/stablecoin pairs, the fiat/crypto pairs, the crypto/crypto pairs, and much more besides.

Uniswap-style automatic market making for everything. Every possession you have, constantly marked to market by ~2040.

More liquidity, less currency?

This is an interesting point. Cash doesn’t make you money. In fact, it can lose you money in an inflating environment.

Reliable, 24/7 mark-to-market on everything is hard — but if achieved, means less % of assets in cash.


AMMs boost BTC. Here's why.

- All assets trade against all assets in the defi matrix
- Automated market makers give liquidity for rare pairs
- Everything is marked-to-market 24/7
- Value of cash drops, as you can liquidate instantly
- The new no-op is to keep your assets in BTC

Basically, automated market makers like @Uniswap boost BTC in the long term, because they allow *everything* to be priced in BTC terms, and *anyone* to switch out of BTC into their asset of choice.

Though in practice this may mean WBTC/RenBTC [or ETH!] rather than BTC itself.

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A brief analysis and comparison of the CSS for Twitter's PWA vs Twitter's legacy desktop website. The difference is dramatic and I'll touch on some reasons why.

Legacy site *downloads* ~630 KB CSS per theme and writing direction.

6,769 rules
9,252 selectors
16.7k declarations
3,370 unique declarations
44 media queries
36 unique colors
50 unique background colors
46 unique font sizes
39 unique z-indices

https://t.co/qyl4Bt1i5x


PWA *incrementally generates* ~30 KB CSS that handles all themes and writing directions.

735 rules
740 selectors
757 declarations
730 unique declarations
0 media queries
11 unique colors
32 unique background colors
15 unique font sizes
7 unique z-indices

https://t.co/w7oNG5KUkJ


The legacy site's CSS is what happens when hundreds of people directly write CSS over many years. Specificity wars, redundancy, a house of cards that can't be fixed. The result is extremely inefficient and error-prone styling that punishes users and developers.

The PWA's CSS is generated on-demand by a JS framework that manages styles and outputs "atomic CSS". The framework can enforce strict constraints and perform optimisations, which is why the CSS is so much smaller and safer. Style conflicts and unbounded CSS growth are avoided.