I have written a couple post on the MakerDao, a credit facility on the Ethereum Blockchain. But now I have a question for those economists out there on the Steem Blockchain.
Given the way it functions A:
MakerDAO is basically a credit facility that issues loans with a certain interest rate called the stability fee against a collateral called Ethereum. The loans are paid to borrowers in Dai. The MakerDao issues new Dai to fund each loan. It is like a country printing currency yo pay its debts. Each Dai is worth one dollar USD. The loan receipients are paid in Dai. Yhry tske the Dai and sell them for dollars in the exchange. The selling of Dai exerts downward pressure on the price of Dai. This pressure threatens the Dai peg to the USD. The governing body of the MakerDao responds to this downward pressure on the value of the Dai not by ending the issuance of new Dai, but by raising the stability fee or interest rates on the loans to discourage people from taking out loans. The stability fee or interest rate is raised to reduce selling pressure on the Dai and help keep it pegged to the dollar and vice versa. The DAI stability fee or interest rates for borrowers was 1%, but later the stability fee increased from 1% to 3.5%. Recently they announced a tentative raise to 7.5%.
I have this question B;
The MakerDao issues new Dai to give to people who deposit Ethereum as collateral for loans. Which they in turn sell on the exchange for dollars, which creates downward pressure on the price of Dai. Why doesn’t the MakerDao go into the Msrket to buy Dai, and loan out this Dai, thus adding upward pressure on the price instead of downward pressure, instead of issuing new Dai, which is like printing Dai. Since the printing of more currency to pay debts devalues the currency and thus is inflationary, why doesn’t the MakerDao stop this inflationary practice. ??
I look forward to reading all the answers from the talented economist on this platform. Large Upvotes will be awarded to the best ones.
✍️ Shortsegments
