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Do we really understand decentralized collateral and DAI?

· 5 min read
NEST Protocol

The difference between DAI and USDT

In collateral, collateralized lending USDT and collateralized generation DAI have similar risks, but there is huge difference in terms of the return. Obviously, on-chain acceptance is higher for USDT, whether it is financing, on-chain quotes, or DEX transaction valuation, USDT is far more dominant. Off-chain, on the other hand, centralized exchanges set USDT directly as the denominated currency, while DAI hardly gets the same treatment. There are multiple reasons for this, including the time to consensus, the difficulty of scaling up, etc. Also, if you enter the fiat world, USDT has a 1:1 (approximate) currency reserve with the USD for redemption, while DAI must be converted to USD by trading into USDT or some OTC service provider, and the cost of this conversion, as well as the scale of liquidity, is also far inferior to USDT. Therefore, from a purely usage perspective, the demand for collateral-generated DAI is dependent on the cooperation of various project parties on the chain, which is what everyone calls the acceptance of DeFi.

Can DAI be copied?

Since DAI itself is a derivative, there is no specificity, i.e., if we copy a contract to generate a DAI2, it would be almost the same to DAI. Moreover, from a gaming point of view, if at the beginning the price of the collateralized asset is 100 and 50 DAI are collateralized according to the maximum 50% collateralization rate, when the price falls to 80, the second person continues to collateralize the pool of DAI and can collateralize to get 40 DAI, at this point, each collateralized asset supports 45 DAI. But if the second person copies a contract for DAI and pledges DAI2 according to the same rules, at this time, each pledged asset supports 40 DAI2, then ask the third person, for the same asset, would you rather accept a pledged asset supporting 45 DAI at $1, or a pledged asset supporting 40 DAI2? The choice is unquestionably DAI2. So, if DAI is to attract people who don't care about the size of the collateral backing, what needs to be done?

DAI's ecology is fragile

It is conceivable that the first thing is to increase over-the-counter USD exchange to ensure that DAI can be turned into USD at any time, this path is actually the DAI as an intermediate credential, the Maker community really do the job USD lending or USD liquidity provision. This is something that I think all collateralized stable coins need to consider, right? The next thing is to find ways to increase the application of DAI, such as into various mining to gain excess revenue. Obviously, why would anyone allow you to capture this value? Why do you need you where you can use USDT? These questions depend entirely on the value provided by the Maker team in the development of the contract with other DeFi. But this value is certainly also unstable, because downstream contracts can always replace the DAI, or even write a DAI2 themselves. the picture that looks incredibly harmonious today is actually very fragile: a system always needs someone to provide value, and it's not sustainable for you to run to another system to grab the revenue without doing anything.

Think about Parasset

Therefore, there must be some basic hard needs to support the intrinsic value of collateralized stablecoins. From the Maker community perspective alone, we do not see this need, as mentioned earlier, because it is too easily replicated, lacks scarcity, and self-reinforcing properties, and therefore cannot constitute a unique asset on the chain. Secondly, there is no origin of this demand within the community: what exactly is the project that needs DAI and must be DAI? This kind of question cannot be answered in Maker, it is not like USDT, there is no way to guarantee a consistent credit rating even after the scale is made bigger and then replicated, while a de-credit DAI is completely consistent. A more reasonable idea is that the mortgage assets themselves for mortgage generation DAI must require DAI to complete some kind of logical closure, which constitutes the fundamental supply-demand relationship: mortgage assets - DAI - mortgage asset generation. In such a scenario of collateralized stablecoin logic, we only see Parasset with this in mind: NEST-based collateralized PSUD and PETH are themselves used effectively in the quoting system to generate more NEST or NEST quotes. Conversely, the use of DAI does not have this correlation and dependency to systematically reduce the financial stress and risk of asset volatility for NEST eco-miners. Moreover, the more NEST that are collateralized the more PUSD will be used in preference. This involves the difficulty of manipulating and influencing prices, indirectly forming a self-reinforcing property, while a Maker that is completely isolated from ETH is simply a standard contract only (as is copying one).

There is an inherent demand in Parasset

If the demand is a concentric circle, the collateralized operation needs to build the bottom concentric circle. Especially for collateralized stable coins, there must be an inherent demand from the collateralized assets themselves to differentiate from the various DAI1, DAI2 and form self-enhancing properties. And this stable demand provides the insurance fund with clear premium income, thus forming the demand and liquidity origin, without the need for the project side to perform OTC services over-the-counter (which is essentially a centralized thing). When this underlying concentric circle is formed, it will gradually spread to the use of some projects within the ecology, such as trading, lending, and derivatives, and thus gradually spread to the cooperative community, the general community, and the off-chain market. The foundation of these basic logics determines the long-term rationality of a blockchain project and continues to gain favorable information in a long evolution. Success is compared to how much information will be in its favor in the future, not how much noise is currently chasing it, of that we are convinced.