- MKR holders react as the Spark protocol reaches its latest DAI debt limit.
- Assessing the correlation between the debt ceiling and MKR’s price action.
MakerDAO has been minting more of its DAI stablecoin recently due to incentivized demand from the Spark protocol. We recently looked into how this demand works but the latest announcement calls into question whether the demand can continue.
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What happens when the amount that can be borrowed reaches its limit? According to MakerDAO’s latest announcement, Spark protocol just reached its 200 million DAI debt ceiling. In addition, this happened within just eight days after raising the debt ceiling from 20 million DAI.
After expanding its debt ceiling from 20 million to 200 million DAI, Spark Protocol maxed out its DAI borrows in just 8 days.
Impressive.
→ https://t.co/SK1gLOSe32 pic.twitter.com/RyB0yziAix
— Maker (@MakerDAO) August 15, 2023
The development raises questions as to how it could impact the ecosystem. More importantly, whether it will have a negative impact on DAI demand, and therefore the demand for MKR. On the other hand, this is not the first time that the Spark protocol reached its DAI debt ceiling.
There is always room for a higher debt ceiling depending on demand. Unfortunately, that demand has so far been fueled by the incentives to earn a return on holding DAI. Saturation will occur at some point, leading to lower returns and eventually lower DAI demand.
So far the MakerDAO ecosystem has been showing signs of a slowdown. The network’s daily active addresses peaked at 894 addresses on 21 July and has been declining since then. For perspective, it had 195 daily active addresses on 14 August which is the lowest daily active addresses figure in the last four weeks.
Source: Santiment
MakerDAO’s network growth also peaked at around the same time as the daily active addresses. It has been on a downward trajectory since then and is now at its lowest point in the last four weeks.
MKR demand slows down kicking off a retracement
MKR bulls notably ran out of momentum in the last two weeks after previously sustaining a bullish trajectory since mid-June. This observation reflects the slowdown in network growth as previously mentioned.
Furthermore, MKR exchanged hands at $1140 at press time after the bears took over. Thus, pushing the price down by as much as 7.2% in the last 24 hours at press time.
Source: TradingView
How many are 1,10,100 MKRs worth today
The timing of the pullback in the last 24 hours aligns with the announcement about the new DAI debt ceiling. MKR’s Money Flow Index (MFI) had already demonstrated outflows since the start of the month but the selling pressure intensified in the last two days.
