MakerDAO (MKR) Cryptocurrency Investment Research Report

MakerDAO (MKR) Cryptocurrency Investment Research Report

MakerDAO (MKR) Cryptocurrency Investment Research Report 1500 1383 Oliver R. George

Introduction MakerDAO (MKR)

The slogan of MakerDAO (MKR) is: realizing the potential of the blockchain. And this is what they are striving for. MakerDAO is comprised of a stable coin, collateral loans, and decentralized governance on the blockchain. Dai (the product of MakerDAO) stands to transform the financial industry by creating a stable and decentralized currency that will allow businesses to realize the future of money. A cryptocurrency investment in Maker (MKR) will participate in the value development of this cryptocurrency coin and give you access to the governance model of MakerDAO.

The Investment Story for MakerDAO (MKR)

MakerDAO (MKR) is a Top 19 Coin at Coinmarketcap at the time of writing.

What is MakerDAO or Maker (MKR)? And what is DAI?

Unless you’ve been studying the blockchain space and the Ethereum ecosystem closely over the past 2-3 years, you most likely haven’t heard of MakerDAO. There was no hype, no ICO, you couldn’t trade the MKR token on popular exchanges until recently. No shilling of the project by the community, no memes, no scandals, no pump & dump. There is, however, an expert community of high professionals working on the project.

Maker is the cryptocurrency coin that powers the creation and stability of Dai. Dai is the product of MakerDAO. It’s a resilient stable coin, linked to the US $. (1 DAI = 1 US$). Dai is an Ethereum backed cryptocurrency for the blockchain. It is designed, tested and has proven it during 3 years of testing and since the launch during last year, that it maintains a stable value in all market circumstances and without restrictions.

Technically, its a bit complex to explain how MKR and Dai work, we will try it later in the report.

In a nutshell: Maker keeps Dai at 1 US$ using a system of collateral in Ethereum and price feeds. This collateral is carefully managed by the MKR token holders, locked in a Smart Contract and MKR holders act as a buyer of last resort.

Investment Rating for MakerDAO (MKR)

 

BUY / ACCUMULATE

Buy/accumulate in the price range of:
450.00 – 480.00 USD

Investment Valuation Scores for MakerDAO (MKR)

Project Fundamentals Score
Token Economics Score
Community / Social Attention Score

The Valuation Scores are based on the Cryptocurrency Valuation Model developed by The Coin Research Team. Please see below for more details.


Cryptocurrency Investment Strategy for MakerDAO (MKR)

Investment Rating: Buy/Accumulate MakerDAO (MKR)
Buy Up to Price / Accumulate: $450.00 – $480.00
Stop Loss: $390.00
Position Size: $1,000–2,000 if you’re a smaller investor or $2,000–3,000 if you’re a bigger investor


Cryptocurrency Exchanges: Where to buy MakerDAO (MKR)? 

Best Exchanges to buy MakerDAO (MKR): 

At the time of writing, MKR is being traded in 48 cryptocurrency pairs on different exchanges. The Exchange with the biggest volume OKex.

Buy It On: OKex


How to store MakerDAO (MKR) Coins? 

MKR Coins are ECR20 tokens, stored on the Ethereum blockchain. Every cryptocurrency wallet that works for Ethereum, will work for MKR too.

We recommend to not store the coins on cryptocurrency exchanges. It’s safer to use the own wallet, where you control the keys.

Store It On:  Nano Ledger (RECOMMENDED), MyEtherWallet

ledger nano hardware wallet from the coin research store 0x protocol zrx

Price Scenarios and assumptions for MakerDAO (MKR)  

Bull Case Scenario:
Target price range 720 – 850 USD (153% – 181%)
(Assumes turnaround of the Cryptocurrency Market and adoption of Dai as a stable coin)

Base Scenario:
Target price range 590 – 670 USD (126% – 143%)
(Assumes that the market turns around and the adoption rate of Dai grows slowly but steady)

Risk Bear Scenario / Stop Loss Scenario:
Target price range 390 USD (-17%)
(Assumes bear market environment for crypto)

Maker(MKR)
$2,385.12 -7.49%(24H Vol)
$122,028,923.00

maker
Maker
-7.49%24H
$2,385.12

Time Horizon for MakerDAO (MKR)

Our target prices are based on mid-term to long-term scenario estimates. MakerDAO is a project that will develop adoption over time and is a solid pick for a long-term investment.

Out mid-term definition means 6-12 month, long-term 12-18 month.
Short-term investments (less than 3-4 month) are the playground of traders, day traders, who are “always online” to monitor the live market’s developments based on Technical Analysis and Fundamentals.

Chart Development of MakerDAO (MKR)

  • maker
  • Maker
    (MKR)
  • Price
    $2,385.12
  • Market Cap
    $2,149,730,825.00


Key research findings: MakerDAO (MKR)

Part 1): Company Background and MakerDAO (MKR)

Maker (MKR) is the cryptocurrency coin that powers the creation and stability of Dai. Dai is the product of MakerDAO. It’s a resilient stable coin, linked to the US $. (1 DAI = 1 US$). Dai is an Ethereum backed cryptocurrency for the blockchain.

Let’ explain MKR and DAI a little bit. If you are not interested in the technical side of the project, you can skip this part.

The easiest way to explain MakerDAO (MKR) is to start with the product, the Dai stable coin. The concept of stable coins is fairly straight forward and easy to understand. It is a cryptocurrency coin (like Bitcoin, Ether, Dash or Monero) that is created and exists on a blockchain. But its not created through a TGE (Token Generation Event) that ICOs are doing, it’s created by an Ether investor on a case by case basis. Dai has unlike to other cryptocurrencies no volatility. It’s always around 1 US$. (+/- 0.02 US$)

How does the Maker / Dai smart contract achieve stability in fast changing and high volatile markets?

To create Dai you will have to deposit Ether as a collateral. First step is, that you send an amount of Ether (ETH) to a smart contract as a CDP (collateralized debt position). This CDP is now locked in a smart contract, that is a piece of software on the Ethereum blockchain. Means you sent your Ether to a prison on the blockchain. You can use now this CDP to create Dai.

To make this scenario a bit easier, let me explain Dai and MKR with an example.

Let’s assume that Ether (ETH) is worth $100. And you decide to send 10 ETH to the Maker smart contract as a collateral debt position (CDP). Your ETH will be locked (prison) and you will receive Dai.

For the example we assume that you get Dai based on a ratio of 5:1, means for 10 ETH = $1,000 you will get $200 in Dai = 200 Dai. No worries, you still own the 10 ETH, however, in addition, you have now $200 in Dai that you can use for whatever you like.

Your collateral remains locked until you paid back the 200 Dai + 0.5% annual fee. If you pay back the 200 Dai + 0.5% annual fee, you get your 10 ETH back again and the Dai will be burned (destroyed).

Why should you do this? The incentive to create Dai is that you can give yourself a loan based on your collateral. Out of the 1,000 US$, you had in ETH you made now 1,200 US$ (the 1,000 US$ in ETH + 200 US$ in Dai)

What are the Risks of issuing Dai?

In a stable cryptocurrency market envorinment, there are no risks to issue Dai.

But what if the Ether (ETH) goes significantly down? In this case, as long as the Ether stays above a threshold, nothing happens.

In the example from above: ETH is at $100, you have locked 10 ETH and issued 200 Dai (Ratio 5:1). If ETH drops to $20, your 10 ETH collateral debt position will have a value of $200. In this case, the smart contract will liquidate your ETH and you would lose it. However, that’s quite a drop for ETH from 100 US$ to 20 US$.

This is how the Maker system ensures there is always enough Ether (ETH) in deposits collateral debt positions to cover the outstanding debts of Dai.

Now what if Ether (ETH) moves in a positive direction, let’s say from $100 to $200 or higher?
In this case, the system still works unchanged: You can always unlock your 10 ETH from the colateral debt position for paying back the 200 Dai + 0.5% MKR fee. You get your 10 ETH back, worth now $200 x 10 ETH = $2,000.

Nice story of a stable coin right? But how is this linked to MakerDAO (MKR) and why is this important for a MKR cryptocurrency investment?

how makerdao mkr works whitepaper cryptocurrency research

Why will Maker (MKR) grow in value?

As you might recall, we mentioned a few times the 0.5% annual fee, when you create Dai. These annual fee amounts will be invested by the smart contract in Maker (MKR) and the MKR will be burnt immediately.

Means the smart contract from Maker (MKR) buys at decentralized exchanges an amount of MKR corresponding to the annual fee and burns the MKR immediately.

Did I mention that the total supply of Maker (MKR) has been fixed at 1,000,000 and cannot be increased?

Right now 728,000 MKR are in circulation. Means the available supply of Maker (MKR) will have long-term only one direction: down!
This will automatically increase the value of the remaining Maker Coins. The higher the adoption of Dai and the more investors generate Dai the more Maker MKR tokens will be burned and holders of MKR will benefit from it.

Part 2): The Team and the Investors MakerDAO (MKR)

The team and the leadership of the project are key decision factors in our investment evaluation. They’re the key to success. You can’t hire a standard manager to execute a highly complex project, with many unknowns, working on the edge of what’s technologically possible.

The Maker Team is a team of experts. Very humble, honest, direct. They discuss openly in the Telegram group about the issues and challenges they face. And they respond to every “stupid” question. For sure they are no marketing people. Maker (MKR) doesn’t seem to have a marketing department. They attend conferences, write blogs, communicate on social media. But no loud screaming, pumping, aggressive communication. That’s not Maker.

Cryptocurrency investment MakerDAO MKR Team coin research

Source: MakerDAO.org

The CEO is Rune Christensen, Danish with a bit of experience as a founder. Check a video on Youtube, where he presents MakerDAO.  (Video starts on minute 3.00)

The CTO is Andy Milenius. You will find many videos from him on Youtube presenting MakerDAO. The total MakerDAO team is for the time being about 45 members. Mainly high-end developers, engineers, etc.

MakerDAO (MKR) did not sell the MKR coins during an ICO / Token Generation Event. They have been funded by professional investors.

The actual investors in MakerDAO are:

  • Andreessen Horowitz
  • Walden Bridge Capital
  • Scanate
  • Polychain
  • Distributed Capital Partners
  • FBG Capital
  • Wyre Capital

Part 3): Valuation of MakerDAO (MKR)

Like always the introductory reminder: Cryptocurrencies are a new asset class. And MakerDAO is no exception! The performance of these assets is based on a different set of fundamentals, compared to standard Stock or Bond assets. Most projects are in an early stage, very much comparable to startups during the Dot.com area. Therefore financial indicators (like Net Revenue, Margin, EBITDA, Cash Flow) would not provide valuable insights and are not available. Softer Key performance indicators are rarely available too, like the number of customers, adoption rate, etc. 

The Coin Research Team has developed a comprehensive CRYPTOCURRENCY VALUATION MODEL for Tokens and Crypto projects. We use a broad set of indicators and group them into 3 categories: 

  1. Project Fundamentals 
  2. Token Economics
  3. Community / Social attention   

The Score range is from 0 – 100 (maximum). Scores above 70 indicate very solid projects with strong indicators in the subsegments researched.

0

Project Fundamentals Score

0

Token Economics Score

0

Community / Social Attention Score

The Coin Research Valuation Model for Cryptocurrencies considers the following:

  • Fundamentals Score: Research of the Idea, Use Case, Whitepaper, Blockchain, Legal risk ICO, Funding level, Competitive situation, Roadmap, Github, Team, Leadership, Governance, Investors, Advisors, Transparency, Communication, and several others.
  • Token Economics Score: Token use case, Value from the use case, Incentive to use it, Inflation, Distribution, Decentralization of Ownership, Dividend Model, Governance model, Exchanges, Liquidity, Daily Volumes, Fluctuations, and many more.
  • Community and Social Attention Score: Followers, Hashtags, Mentions, Members Social Media channels, activity, quantity and quality, Tonality, Promotions, Educational material, Support Groups, etc.

Part 4): Investment Risks for MakerDAO and How to Mitigate Them?

The invest concept of a cryptocurrency is still novel and, compared to traditional investments, MAkerDAO doesn’t have much of a long-term track record or history of credibility to back it. It has been launched December 2017.

With their increasing use, Cryptocurrency Coins and Tokens are becoming less experimental every day, but remain in a development phase and extremely volatile.

Please note and unchanged: Cryptocurrencies are pretty much the highest-risk, highest-return investment that you can possibly make.

Our overall risk evaluation is LOW for MakerDAO (MKR). 

 

Risk 1: Market Volatility for MakerDAO 

Cryptocurrencies and MKR included, are highly volatile assets. The 2-3% fluctuation you might know from the stock market, can easily translate to 15-25% fluctuation in Cryptocurrencies. During the same day!

Indeed, the value of the MakerDAO Coin has seen some stronger swings in price over its short existence. The overall market development is the key influence factor. High trading activity in Cryptocurrency coins requires high amounts of stable coins (Dai).

The volatility of MakerDAO fluctuates between 270 USD to 1,600 USD. The volatility on a daily basis is between 2-5% and lower than the crypto average.

We see the MakerDAO token currently in a slight turnaround trend, that seems to stabilize around 400-450 USD.

cryptocurrency investment makerdao mkr coin research report

Source: Coinmarketcap

 

Risk 2: Company Inherent Risks for MakerDAO (MKR) 

Company inherent risks are:

  • Security breaches and hacks of the MKR coin or the Dai stable coin protocol. Note this is a “Software Only” company and the software/ protocol is everything they produce. Entirely digital companies and all cryptocurrencies face a high risk from hackers, malware, and operational glitches.
  • Important team members could leave the project. If the founders would leave the project, this would probably hurt the development significantly.
  • There are many other stable coins, backed like Tether (they claim to back it with USD), USD Coin, TrueUSD and others. These stable coins could become a risk for the Dai development if the access and availability are broader than Dai.

Risk 3: Regulatory Risk for MakerDAO (MKR)

Like many other projects, MakerDAO did not raise money through an ICO. They were fully financed by investors. Early adopters were able to obtain Maker tokens only through private sales and their forum. Therefore we don’t see risks from a regulatory side, compared to other ICO projects.

Risk 4: Investors Risk MakerDAO (MKR) – Consumer Protection

The investor’s risks are linked to the loss of the investment on exchanges, loss of wallet keys, scamming, etc. Unlike traditional banks, cryptocurrency doesn’t have any official safeguards or insurances. Your wallet is not a bank! Your exchange is not a bank!

For example, whereas the Federal Deposit Insurance Corporation underwrites depositors’ savings to the value of $250,000 each in both banks and brokerages, crypto exchanges are not part of the program. If your exchange becomes insolvent, you will lose everything.

Ultimately, buying cryptocurrencies could result in losing everything you invested in them. You should never invest more than you can afford to lose.

Part 4): The Worst Case Scenario and How to Avoid it?

The worst-case scenario for MakerDAO is that the coin falls to zero. Or nearly zero. This can happen if the software would be hacked, the issue is not solvable and the company would not be viable. However, the probability is extremely low for this.

Form an investors point of view, the risk is that the investment does not develop positively and the coin drops in value.

How to avoid losses with cryptocurrencies? 

We recommend working with a clear loss limit Strategy. Means, when the coin reaches a level you set, e.g. 390 USD for MKR, you sell the investment.

This can be executed via Stop Loss Orders if you keep the coins in exchange. Stop Loss Orders allow you to set a price at which you want to sell a coin. Stop-loss orders are designed to limit an investor’s loss on a position in a security.

Example: if the coin reaches 390 USD, your Stop Loss Order will be executed and you would automatically sell at 390 USD or the next available price.  Note that if the price of the coin never reaches your limit price, your trade won’t be executed.

Stay tuned to The Coin Research and check our updates. We will publish updates to MakerDAO (MKR) on a regular basis.

Disclosures:

The Authors do not own MKR tokens. This research report is strictly informational and is not investment advice. Please refer to our Legal Notices for further information.  The Coin Research and the author did not receive compensation to create this research report, outside of our customers and subscription paying members. We have not been hired by the covered company or other third parties (e.g. consultants, advisors, VC) to prepare this research report.

Forward-Looking Statements and Projections:

Any estimates, projections, forecasts included in this document are speculative and based upon analysis of publicly available information. The targets, recommendations, thoughts shared in the report are subject to known and unknown risks, uncertainties and other unpredictable factors. The report might not cover all risks, might be materially wrong and forecasts might not materialize. No representations or warranties are made as to the accuracy of such forward-looking statements.

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