The transition from single-collateral DAI (SCD) to multi-collateral DAI (MCD) marked a pivotal moment in the evolution of decentralized finance (DeFi). As one of the most anticipated upgrades in the DeFi space, MakerDAO’s MCD launch on November 18, 2019, redefined how users interact with stablecoins, collateral, and governance. This article explores the transformation through key data points, user behavior, and system performance—offering insights into why this upgrade stands as a benchmark for DeFi innovation.
The MCD Upgrade: Expanding Collateral and Enhancing Mechanics
Prior to November 2019, MakerDAO operated under a single-collateral model where Ether (ETH) was the only accepted asset for generating DAI, then known as SAI. The shift to MCD introduced two major advancements: multi-asset collateral support and new monetary policy tools.
Users could now generate DAI by locking up multiple approved assets—not just ETH. At launch, Wrapped ETH (WETH) and Basic Attention Token (BAT) were the first supported collateral types. Governance via MKR token holders allows ongoing adjustments to the collateral basket, ensuring flexibility and risk-adjusted growth.
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A second key upgrade was the introduction of DAI Savings Rate (DSR)—a mechanism enabling DAI holders to earn interest directly through a smart contract without counterparty risk. This gave MakerDAO a powerful tool to balance supply and demand: while stability fees influence borrowing (supply side), DSR influences holding (demand side).
Additionally, stability fees are now paid in DAI instead of MKR, reducing forced selling pressure on the governance token. Unpaid fees accrue on debt positions, creating stronger incentives for timely repayment and reducing systemic risk from undercollateralized vaults.
Adoption and Migration: A Smooth Transition
Within a month of MCD’s activation, 50% of circulating SAI had been converted to DAI, signaling strong user confidence. The migration process was facilitated by a dedicated smart contract (saiJoin), which temporarily held SAI during the transition. Approximately 99 million SAI flowed into this contract, representing 97% of the total SAI supply at the time.
Despite concerns about liquidity crunches, new SAI was minted during the migration window—over 38 million SAI—to support deleveraging and platform activity. This organic liquidity injection came from existing CDPs (Collateralized Debt Positions) and secondary platforms like Compound, which continued borrowing SAI.
However, migration momentum slowed in the final two weeks, with SAI balances accumulating in the saiJoin contract. This suggests waning interest among remaining CDP holders—many of whom appear inactive or economically disengaged.
Collateral Trends: ETH Dominates, BAT Gains Ground
While WETH remains the dominant collateral type—with over $355 million locked** compared to BAT’s **$4.5 million (as of January 30, 2020)—the adoption rate relative to market cap is telling.
Approximately 1.8% of total ETH supply is locked in MakerDAO, while 1.5% of BAT supply is committed. This indicates comparable levels of ecosystem engagement relative to asset size.
Interestingly, BAT wasn’t the initial frontrunner in governance voting. Augur’s REP token initially led but was rejected due to concerns over price volatility ahead of its v2 launch. This highlights MakerDAO’s growing emphasis on risk-aware governance, where technical readiness and market stability factor heavily into collateral decisions.
MKR Tokenomics: Governance and Deflation in Action
MKR serves dual roles: governance participation and protocol revenue absorption. Stability fees paid in MKR are burned, creating deflationary pressure. Since inception, 11,000 MKR tokens have been destroyed, reducing the initial 1 million supply to 989,000.
Post-MCD migration, MKR burn rates increased significantly within the first week—confirming expectations that system upgrades would trigger debt closures and fee settlements.
The distribution of MKR remains concentrated:
- The top three holders control 38% of supply
- The top six exceed 50%
These include:
- MakerDAO Governance Contract (202k MKR)
- MakerDAO Team Multisig (117k MKR)
- Andreessen Horowitz (60k MKR)
Despite centralization concerns, active participation spans over 17,000 unique addresses, indicating broad governance engagement across the community.
CDP Behavior and Systemic Risk
Over 154,000 CDPs were created under the SCD system. As of early 2020, only 19,609 had been closed, with just 2,587 closed post-migration. This inertia raises questions about long-term platform sustainability.
One outlier CDP (#3088), opened in August 2018, holds 178,720 PETH as collateral and owes 8.28 million SAI, with unpaid stability fees exceeding $800,000. Its collateralization ratio stands at 331%, far above the 150% minimum—suggesting users often over-collateralize as a hedge against volatility.
During the November–December 2019 ETH price drop—from $183 to $122—about 38,000 ETH was liquidated, with peak liquidations on November 22 (19,404 PETH cleared). On average, a 7.2% drop in ETH price triggered liquidations, revealing sensitivity to rapid price movements rather than gradual declines.
Liquidation bots earned an estimated $170,000 during this period—based on assumed 3% auction discounts—though real-world gains vary due to gas costs and oracle latency.
The Lingering SAI Challenge
Despite successful migration, a significant amount of SAI remains in circulation. The top 100 CDPs account for 86% of outstanding SAI debt, with 30 showing zero activity since migration began. These dormant positions owe $11.5 million in debt** and accumulate unpaid fees—totaling **$1.2 million out of $2.2 million in unpaid SAI stability fees.
Only about 20% of CDPs actively repay fees, suggesting limited urgency to migrate. Some even increase debt or deposit more ETH—possibly hedging against future volatility or leveraging low borrowing costs.
SAI holders are similarly concentrated: the top 100 addresses hold 75% of remaining SAI (28.5 million). Many belong to DeFi protocols like Compound’s cSAI pool. As SAI liquidity fades and yield opportunities shrink compared to DAI+DSR, pressure mounts for full migration.
Liquidity and Market Dynamics
SAI liquidity has declined across decentralized exchanges (DEXs). Weekly average trading volume now hovers around $250,000**, primarily on Uniswap and Kyber. Uniswap holds **$1.2 million in SAI liquidity, versus $2.9 million for DAI—highlighting growing preference for the newer stablecoin.
This reduced liquidity complicates deleveraging for remaining CDPs, especially those adding collateral to avoid liquidation during downturns.
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Competition from Secondary Lending Markets
The introduction of DSR disrupted secondary lending markets. Platforms like Compound and dYdX saw DAI deposits drop sharply—dYdX experienced an 80% decline in DAI deposits. Today, total DAI deposited across secondary markets equals about 50% of total DAI+SAI supply, down from 66% in September 2019.
Unpaid interest rates also fell—from highs of 13% in summer 2019 to around 6%, reflecting improved efficiency and reduced arbitrage opportunities.
Secondary markets now hold only $22 million in outstanding DAI/SAI debt, just 15% of MakerDAO’s total debt—down from 46% in September 2019. This shift underscores MakerDAO’s strengthened position as the primary DAI issuance channel, driven by lower stability fees and seamless integration with DSR.
On-Chain Activity and User Engagement
Daily active DAI addresses stabilize around 2,000, about 10% lower than pre-migration SAI activity. A spike in mid-2019 was linked to Coinbase’s “Earn SAI” campaign and isn’t directly comparable.
Since December 2019, DSR participation has grown steadily—especially after Compound began routing idle DAI into DSR and when DSR rates rose from 2% to 4%. However, further rate increases (to 6%) did not accelerate inflows. In fact, DSR utilization dipped in January 2020 despite a 45% increase in total DAI supply, indicating demand hasn’t kept pace.
Frequently Asked Questions (FAQ)
Q: What is the difference between SAI and DAI?
A: SAI refers to the original single-collateral DAI issued before November 2019, backed only by ETH. DAI is the newer multi-collateral version that supports various assets like BAT and WETH.
Q: Why hasn't all SAI been migrated to DAI?
A: Many large CDPs remain inactive or have accumulated high stability fees. Some users may lack incentive or awareness, while others might be waiting for better conditions to close positions.
Q: How does DSR work?
A: The DAI Savings Rate allows users to earn interest by sending DAI to a smart contract. There’s no lock-up period or credit risk—the rate is adjusted by MakerDAO governance.
Q: Can any token become collateral in MakerDAO?
A: Yes, but only after passing governance votes and risk assessments by Maker’s core units. Factors include liquidity, decentralization, and price stability.
Q: Is MKR a good investment?
A: MKR derives value from its role in governance and fee-burning mechanics. As more debt is created and settled, MKR burns increase, potentially driving scarcity—but it carries protocol and regulatory risks.
Q: What happens if SCD is shut down?
A: If governance votes to deactivate SCD, remaining SAI CDPs will be required to repay debt or face liquidation. SAI may eventually be deprecated in favor of full MCD adoption.
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Conclusion
MakerDAO’s shift to a multi-collateral system has proven resilient and transformative. Strong adoption, innovative monetary tools like DSR, and active governance participation underscore its leadership in DeFi. Yet challenges remain—particularly around legacy SCD positions and long-term decentralization.
As the ecosystem evolves, MakerDAO continues to serve as a living lab for on-chain governance, risk management, and decentralized monetary policy—setting standards for what’s possible in open finance.
Core Keywords: MakerDAO, multi-collateral DAI, DSR, DeFi governance, stablecoin, MKR tokenomics, collateral migration