Author: Taiki Maeda
Translated by: TechFlow
In the MKR/SKY report from a few months ago, I proposed that restarting the buyback would outperform most crypto assets on a risk-adjusted basis. Since the buyback was announced on February 20th:
MKR rose 46% compared to BTC,
MKR rose 70% compared to ETH,
MKR became one of the few cryptocurrencies with a year-to-date (YTD) price increase: +24%.
In this update, I will discuss from three aspects why I believe this trend will continue:
Launch of SKY staking mechanism
Mandatory SKY token migration (>10% of supply will be burned)
SPK token mining plan
Introduction to SKY Staking Mechanism
Currently, MKR/SKY is a token that uses all protocol revenues for token buybacks. At the current buyback rate, the protocol repurchases about $15 million per month (approximately $500,000 daily), equivalent to about 1% of the circulating supply monthly (the highest proportion among all crypto projects).
On April 30th, Rune posted a proposal on the forum to launch the SKY staking mechanism. According to the proposal, 50% of protocol revenues will be allocated to SKY stakers, paid in USDS. This means approximately $250,000 per day for buybacks and $250,000 allocated to stakers.
Assuming 33% of SKY supply is staked, stakers are expected to receive a 7-8% staking yield.
Mandatory SKY Token Migration
In the same update, a forced migration from MKR to SKY was also mentioned:
Since MKR is one of the earliest ERC20 tokens (launched in 2017), there are inevitably some permanently lost tokens. This could be due to lost private keys, lost wallets, or the death of holders. Through on-chain data analysis, I discovered some "dormant MKR tokens" that will inevitably be destroyed from the supply.
Based on reasonable assumptions, such as: "If 23,349 MKR tokens have not had any transfers in the past 4-5 years, I can assume that about 90% have been permanently lost and will be destroyed." According to these assumptions, I estimate approximately 100,000 MKR will be destroyed during migration (about 11.4% of circulating supply). By referencing other lost token cases (such as Aragon DAO), I believe this is a conservative estimate.
Taking the 2023 Aragon DAO token ($ANT) as an example, when its trading price was lower than the treasury value. "Treasury raiders" or RFVooors bought tokens below net asset value (NAV) and demanded treasury redemption for profit. This action was successful, followed by launching ANT token migration to a new token to redeem treasury value. In this process, about 27% of tokens were not migrated, suggesting these tokens were permanently lost.
Therefore, I expect 10-20% of MKR to be burned in the coming months or years, which will support token price. Additionally, this forced migration may encourage more centralized exchanges (CEX) to list SKY, bringing additional benefits.
SPK Token Launch
Spark is a project combining lending markets with on-chain asset management, achieving $40 million in revenue in the first quarter of 2023 with almost no incentive mechanisms. They were able to borrow stablecoins at subsidized rates, thereby distributing capital on-chain.
SPK will be a "fair launch/mining" token that users can only mine by staking USDS or SKY (refer to related documentation for specific economic model). In the first two years of token issuance, 50% of $SPK incentives will be allocated. Assuming a fully diluted valuation (FDV) of $500 million, $250 million will be distributed to SKY/USDS stakers. This not only provides staking yields for native tokens but will also promote USDS growth, which will further drive future buybacks.
Additionally, other subDAOs or "Star" projects are 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 the bill will likely pass in July or August.
Summary
Stablecoins are the future and one of the most profitable projects in the crypto field.
