By Dominik Poiger, CFA, Portfolio Manager at VanEck
Decentralised finance, or “DeFi”, is on a roll with the launch of several products and many more to come. The concept is to build traditional financial tools on a public blockchain, taking out intermediaries in the process.
One of the most prominent examples is MakerDAO, a “decentralised autonomous organization” promoting the decentralised stable token “DAI”. Similar to the controversial USDT, DAI is pegged to the USD but collateralised by ETH (1 DAI = ETH worth 1 USD), giving holders of ETH the possibility of exchanging ETH for DAI and foregoing the volatility of the (locked up) digital asset. This is practical in two ways: first, users of ETH can transact in a practical and stable way; and, second, the long-term stability of DAI against the USD enables crucial financial functions such as loans and credit.
Amongst other DeFi projects are: Augur, Dharma, and Compound.
DAI vs. USD
Source: MV Index Solutions.
About the Author:
Dominik Poiger oversees ETF Portfolio Management for VanEck Europe. Prior to joining VanEck he held a Portfolio Manager position at Tungsten Capital Management GmbH being responsible for managing two UCITS funds and consultant in the Financial Services Transaction Department at PwC. He holds a Diploma in Business and Economics with specialization in Accounting and Finance, International Economics and Banking and Finance from University of Hohenheim, Germany.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.