background:Over the past year, MakerDAO has achieved top performance compared to Bitcoin (BTC), Ethereum (ETH), and other decentralized finance (DeFi) protocols. While the currency price of general DeFi participants increased by 200%, MKR's currency price increased by approximately 500%. This outstanding performance makes people ask: What is the secret of MakerDAO’s strong performance in both bear and bull markets? Is it its solid fundamentals, or is it the success that comes from its varied narrative?
Few cryptocurrencies held up during the last bear market, and Maker (MKR) was certainly one of them. At a time when other blue-chip assets have seen price swings, Maker has not only held on to its value, but has also experienced impressive growth, doubling from March to October 2023. This resilience is a testament to its ability to not only survive adversity, but thrive under difficult conditions.
But Maker’s appeal isn’t limited to bear markets. With the cryptocurrency market bullish in early 2024, the price of Maker increased from 1400 to 2000. After everyone's most anticipated plans for Endgame were announced on March 13, the price soared to 3,000. A surge like this means holding MKR could have delivered returns of up to 5x over the past year!
MakerDAO’s success factors
Solid Fundamentals: MakerDAO’s success stems from its solid fundamentals and diverse business model, with strong performance in both real-world asset (RWA) and cryptocurrency markets. In the current uncertain situation of traditional financial macro conditions and the DeFi track, we believe that MKR’s business layout in the two fields can allow it to resist risks and obtain considerable returns.
Endgame Roadmap: Positive market sentiment and Endgame roadmap bode well for future growth. The release of MakerDAO Endgame: Launch Season further boosted market sentiment. Challenges for Endgame include striking a balance between innovation and risk, ensuring stakeholder understanding of its purpose. It brings a new token economic model, governance framework and clear development roadmap to improve its growth, risk resistance and mass acceptance.
We believe that despite simplifying operations, its core business focus remains basically unchanged today. The benefits brought by the revenue side will not be particularly significant in the short term, but it may reduce internal communication costs and improve the professionalism and professionalism of each business. Operational efficiency.
We believe that the effective execution of Endgame is crucial to MakerDAO’s ability to continue to lead the future DeFi landscape. The impact of the roadmap and MakerDAO’s commitment to innovation will determine its future success.
MakerDAO’s strategic layout
Staked Ethereum (stETH) integration
In the crypto space, MakerDAO has approximately 600,000 wrapped staked ETH (wstETH) locked through its core protocol and subsidiary Spark. This important integration makes MakerDAO the third largest Total Value Locked (TVL) entity at $11.67 billion ($8.67 billion locked in Maker and $3 billion locked in Spark), behind Lido’s $34 billion and Eigenlayer’s $118.01 billion dollars. Unlike Lido and Eigenlayer, which focus on staking and re-staking services, MakerDAO’s DeFi business model goes beyond simple asset staking.
By locking stETH, MakerDAO effectively uses these assets as collateral to mint its native stablecoin DAI. This process allows MakerDAO to generate revenue through stable fees (interest rates) charged on loans issued against stETH. As Ethereum earnings fluctuate, MakerDAO adjusts its risk parameters and interest rates to ensure revenue generation while maintaining system stability. This approach transforms Ethereum’s volatility and gains into a steady revenue stream, solidifying its position as a leader in the industry.
RWA strategy
In June 2023, MakerDAO integrated U.S. Treasuries into its portfolio, a move that means it is diversifying its revenue streams by leveraging RWA. Essentially, Maker’s governance is unwilling to allow its balance sheet to hold inefficient and “dangerous” USDC when a highly productive and risk-free alternative exists. This decision not only positions MakerDAO as a leader in RWA within the cryptocurrency industry, but also significantly boosts its revenue.
RWA, which includes real assets such as real estate and bonds, has become a significant part of MakerDAO’s revenue, contributing approximately 60% of its fee income. The inclusion of U.S. Treasuries proved to be a successful strategy, enhancing MakerDAO’s revenue stability, resulting in annual revenue exceeding $100 million.
According to a report from Steakhouse, about 56% of revenue in 2023, totaling 76.3 million Dai, will come from real world assets (RWA). Further analysis shows that 83% of real-world asset income is concentrated in the second half of the year, coinciding with a period of continued growth in the ten-year federal interest rate.
MKR: the all-weather crypto asset
MKR has performed well in different market environments due to its strategic allocation in RWA and crypto market lending. In a high interest rate environment, MKR has shown great resilience, benefiting from its RWA investments, unlike other cryptocurrencies that may suffer under such macroeconomic stress. When interest rates fall, market liquidity increases and the crypto market enters a bull run, MakerDAO’s strategy is expected to shift to its strengths in crypto-native operations, specifically the lending and borrowing of cryptocurrencies.
As such, MakerDAO deftly navigates market cycles, focusing on lending and borrowing cryptocurrencies in bull markets and optimizing RWA returns in bear markets, ensuring its status as a strong all-weather crypto asset.
The chart below reconfirms Maker's asset allocation strategy. When Fed rates peaked at about 5% in October 2023, Maker allocated the largest portion of its assets to RWA-related assets, generating proceeds from Treasuries and other credit-related products.
As interest rates began to fall as the Federal Reserve became more confident in controlling inflation, Maker strategically pivoted into crypto-related areas.
The current macro picture is not as clear as we might have thought: With the inflation number announced by the US Bureau of Labor Statistics falling short of analysts’ expectations (CPI in March 2024 was 0.4%, vs. 0.3% expected), there are concerns about a Fed rate cut expectations continue to be delayed or even suppressed. JPMorgan CEO Jamie Dimon even mentioned the risk of interest rates rising above 8%. The high interest rate environment provides more profit opportunities for RWA projects. There is a good chance that Maker will profit from RWA again.
Valuation Expansion: Market Recovery and Narrative Evolution After Endgame Launch
The previous sections highlighted MKR's solid business model and impressive profitability, laying the foundation for understanding its valuation. However, the surge in MKR’s price is not solely due to its financial performance, as earnings estimates were raised from $500 million in April 2023 to $1.5 billion in March 2024, but the price increased by as much as 5x.
A closer look at the data from Makerburn reveals another important part of the story: valuation expansion. From March 2023 to March 2024, MKR's valuation rose from $200 million to $1 billion, a change primarily due to the market's reassessment of its future growth potential.
in conclusion
MakerDAO’s success in both bear and bull markets stems not only from its solid fundamentals, but also from its flexible strategic layout and positive market narrative. By integrating stETH and RWA, MakerDAO demonstrates its unique position and strong adaptability in the DeFi field. With the launch of the Endgame plan, MakerDAO's future growth potential is further recognized by the market.
Whether it’s a bear market or a bull market, MakerDAO continues to stand out in the cryptocurrency market through its diverse business model and solid fundamentals. In the future, whether MakerDAO can continue to lead the DeFi track depends on its ability to effectively execute the Endgame plan and strike a balance between innovation and risk.