Andreessen Horowitz Buys 6% of DAI’s MakerDao

One of the best known venture capital firm in Silicon Valley has bought $15 million worth of 60,000 MKR at $250 per token according to an announcement. They say:

“The purchase gives a16z crypto a stake in the first functional decentralized stablecoin and the only system built with formally verified smart contracts on Ethereum (or any blockchain).

As a MKR holder, a16z crypto will participate in governance of MakerDAO and the Dai Credit System as it becomes the first decentralized autonomous stablecoin organization.”

The purchase agreement appears to be a three year partnership of sorts with Rune Christensen, founded of the Maker Foundation, stating:

“They have 10k MKR that is free, 20k MKR that has a lockup of 1 year, and 40k MKR that has a lockup of 3 years… There’s a difference between just being an investment and then being a part of the core portfolio.”

It appears the team behind Maker will now benefit from the vast connections of the VC firm as well as their long expertise of getting many projects to go from start-ups to global brands.

Jesse Walden and Katie Haun of a16z say: “Cryptocurrencies are borderless, trustless, and accessible to anyone with an internet connection. As such we believe they’ll increasingly be used for a host of financial services in years to come.”

One such use for DAI, among many, has been to act as a bank of sorts by giving out loans based on eth collateral put down through their smart contract.

Around $55 million dai have been created through this process, with each dai algorithmically pegged to one dollar.

Maker is meant to be a Decentralized Autonomous Organization (DAO) that sort of oversees dai and takes decisions on what the interest rate should be and other aspects.

The holders of Maker are given “dividends” from this interest rate, aligning their incentives towards the growth of dai, making this an interest bearing asset.

Currently, bitcoin and ethereum have no returns as in 1 eth doesn’t become 1.01 eth after a year like in a savings account or in stocks where they issue dividends.

For eth that will change once staking goes live potentially next year, which will then allow individuals to earn around 5% for securing the network by just locking their eth for staking.

A number of tokens already provide such “interest” or “dividend,” with Maker being one of them.
This purchase of 6% of the supply sounds like a fairly big bet for the VC, although it seems they did buy at a considerable discount as MKR’s price was $500 when this was announced.

Yet we do not know when these terms were agreed as crypto and token prices can of course be very volatile, but Maker seems to have a pretty high concentration of ownership.

Just the top two holders, with the top one presumably being the dev team, have some 45% of all the supply. The top 5 or so have 70% of it.

The project, therefore, is somewhat small, with its market cap at around $300 million. That’s partly because it has just recently launched with DAI out in December 2017 while MKR started trading in January 2018.

Moreover, Maker appears to lack markets. They’re not on Binance for some reason, but OKEx does list them.

They are further to expand dai to allow for other assets to be used as collateral rather than just eth. Which assets, exactly, will probably be determined through the DAO, but the platform does have to grow somewhat slowly because one little bug and all the money in dai could be gone, although there are some fail safe mechanisms.

There has been no such bug so far, quite surprisingly considering the significant bounty. If that situation continues, then the current limit of $100 million dai can be increased with $1 billion quite a milestone and then perhaps $10 billion and beyond at which point MKR dividends may be quite substantial.