Catching up with an old friend

A little less than two weeks ago, while I was browsing my LinkedIn page, I came across a familiar face who I haven’t seen for a while. It was my co-founder, Lasse, who recently joined a new blockchain organization called MakerDAO.

Lasse and I were venture partners a couple of years back (2013) in a startup we co-founded, BuyBitcoin.ph, in the Philippines. It became the first bitcoin OTC exchange in the country whose purpose was to help spread awareness of the nascent technology’s potential to the Philippine market.

After our company was successfully acquired in 2015, we parted ways. Lasse spent the majority of his time doing blockchain advocacy and financial technology products while I focused more on the in-depth side of the blockchain technology itself.

So when I saw him again active on LinkedIn, I had to check out what he was up to. So I viewed his LinkedIn profile and there I saw he is now working with MakerDAO. I gave him a call the next day to catch up.

For those not familiar, MakerDAO is famously known for their Ethereum-based stable coin Dai. A stable coin is a type of cryptocurrency that aims to peg 1 coin to a dollar as much as possible. But the way Dai works is cleverly different.

What is a “Stable coin”?

Trust fund companies

When people talk about “stable coins”, they are usually referring to digital assets that are backed by trust companies that act as custodians for the physical fiat currency. In other words, a centralized trust fund.

An example of these would be tUSD, gUSD, USDC, and Tether.

Decentralized version

With Dai (much like bitcoin), there is no centralized backer for its value. It is a democratized self-governing economy.

Dai’s Collateralized Debt Position

Collateralized Debt Position (CDP) allows you to lock your crypto assets (ETH and other ERC20 tokens) into a CDP vault in exchange for a loan that’s in DAI. To gain back access back to your locked assets, just repay your debt in Dai. Pretty simple.

When the value of Dai goes slightly above $1, people are incentivized to collateralize their asset for a bigger loan.

When the value of Dai goes slightly below $1, owners with collateralized assets can pay their debts off (with Dai) at a slightly cheaper price (discount).

As an example:

  1. Say I have ETH worth $1 million
  2. I collateralize my ETH in a CDP vault
  3. I can take a loan of $500K (in Dai).
  4. If Dai’s price goes below from $1.00 to $0.99, I can buy Dai at a lower price
  5. If Dai’s price goes above from $1.00 to $1.01, I can collateralize more assets at a discount.

For number 4, I will need to pay that back in order to close my CDP. For number 5, I can pay off my CDP faster at less cost

This is how I understood the whole system. Which is pretty clever if you think about it. No central body will control or make a decision. It is based on market activity.

You don’t need a CDP to get DAI

Like bitcoin, you don’t need to mine bitcoins to have them. You can simply buy it off from someone willing to sell it to you (e.g. an exchange).

In the same fashion, Dai does not require the average person to collateralize something just to get Dai. You can just simply buy it from a DEX using ETH, BTC or any supported cryptocurrencies.

Dai’s potential

From my perspective, Dai seems to be the only truly decentralized stable coin that does not rely on backers and trust funds to have value. This is how bitcoin became popular as a cryptocurrency because it is driven by the market but you avoid the market volatility in Dai due to the nature of its design.

Andromeda x Dai

Going back to my preface; I gave Lasse a call the next day and asked him if there’s a way we can work together again.

My company, MergeCommit, does three things extremely well:

  1. Cryptocurrency exchange software (supports ERC20)
  2. Token payment solution (supports ERC20)
  3. Blockchain consulting & product development

and with MakerDAO’s Dai stable coin:

  1. Provides a close $1.00 USD pegged-value to the user/holder
  2. Aims to work with merchants to accept Dai as a payment method

I immediately had a lightbulb moment. Using my company’s existing offerings, and using Dai’s stable coin design, together we can:

  1. Have Andromeda (our white-label cryptocurrency exchange software) support Dai’s token and include it in all Andromeda-licensed exchanges for FREE
  2. Have Tadashi (our tokenized payment solution software) to support Dai to allow merchants to accept it as a payment method.
  3. Work with enterprise clients to utilize blockchain by building new services on top of 1 and 2 through our Cerberus program

Example Use Cases

For Andromeda, Dai will serve as a banking solution. Instead of connecting to a bank, the exchange owner can have the option to accept Dai as a pegged USD value in the exchange.

For Tadashi, the platform can utilize Dai as the currency for accepting payments which can then be later converted to cash through a fiat gateway.

Why would my customers buy Dai in a centralized exchange if they can do it in DEX?

Good question. In a perfect world, we would all trade in a DEX if we are true believers of a decentralized world. But here's a counter question...

Would your 60 plus year-old dad be willing to trade on a DEX with no human beings running it? Probably not. He will still do it through a company who he knows has people he can call whenever something goes wrong.

You have billions of people like that in the real world. And if we want true adoption of blockchain technology, we have to create railways that would connect the rural areas to the urban ones. You simply cannot impose a system on people if you want them to use your product. It just can't work because people hate change.

Instead, we focus on the customer first then work our way backward on what kind of technology would make sense to achieve the goal.

Hence, why I believe Andromeda can be that railway. You can customize it according to the type of target users you have in mind while still having that framework underneath that deals with interoperability between blockchain networks.

I am a bit interested. What's next?

If you want to know more, you should definitely email us partners@mergecommit.com or send us a quick chat. My staff are very accomodating and will guide you from start to finish.