The stablecoin landscape is one of the most critical and profitable sectors in the cryptocurrency ecosystem. At the center of this evolution stands MakerDao, the largest decentralized stablecoin protocol in existence. With its upcoming V3 upgrade—dubbed "Endgame"—MakerDao is poised to reinforce its dominance through structural innovation, improved governance, and enhanced value accrual for its native MKR token.
This article explores the broader stablecoin market, traces MakerDao’s journey from its inception (V1), analyzes its current state (V2), and dives deep into the transformative potential of its future (V3). We’ll also examine why MakerDao may currently be one of the most undervalued assets in crypto—despite strong fundamentals and a clear roadmap for growth.
The Stablecoin Ecosystem: A Foundation for Growth
Cryptocurrencies are inherently volatile due to their speculative nature, limited liquidity, and early-stage development. To address this, stablecoins were introduced in 2014 as a mechanism to reduce price swings and provide a reliable store of value within digital asset portfolios.
Today, fiat-backed stablecoins dominate the market. They serve essential functions across the crypto economy:
- Store of Value: By reducing portfolio volatility, stablecoins offer a safer haven during market turbulence.
- Remittances: Enable fast, low-cost cross-border transfers without traditional banking intermediaries.
- Trading: Facilitate seamless exchange settlements on crypto platforms—often using USDT or USDC instead of fiat.
The six largest fiat-backed stablecoins collectively hold over $120 billion in market capitalization—more than 10% of the total crypto market. USDT accounts for roughly 70% of supply, followed by USDC at around 25%.
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Profitability in Stablecoins
Stablecoins are among the few consistently profitable segments in crypto. Companies like Tether generate revenue by investing reserve dollars into interest-bearing assets such as short-term U.S. Treasury bills. In Q1 alone, Tether reported $1.48 billion in profit from $81.8 billion in assets—earning an estimated $4.5 billion annually at current yields.
Compare that to Coinbase, which earned just $736 million in total revenue during the same period—and posted a net loss after expenses. While public data on private firms like Circle (USDC) is limited, it's likely that Tether and Circle out-earn nearly every other crypto company combined—except Binance.
Yet retail investors cannot directly access these profits, as both Tether and Circle remain privately held.
Alternative Stablecoin Models
Fiat-backed stablecoins carry systemic risks tied to traditional banking. The collapse of Silicon Valley Bank (SVB) in 2023 caused USDC to depeg to $0.87, exposing vulnerabilities in custodial dependencies. Even today, approximately $1.9 billion in SVB deposits remain unrecovered by FDIC.
This has fueled interest in alternative models:
- Algorithmic Stablecoins: Examples like TerraUSD (UST) collapsed catastrophically, wiping out $20 billion in value overnight.
- Crypto-Collateralized Stablecoins: These avoid centralized counterparty risk and rely on over-collateralization instead.
Enter MakerDao, the leading decentralized issuer of crypto-backed stablecoins—and the focus of this analysis.
SAI: The Genesis of MakerDao (V1)
Launched in 2017, MakerDao introduced SAI, a decentralized stablecoin backed solely by Ethereum (ETH). It was one of the first major DeFi applications and pioneered trustless financial primitives.
Here’s how it worked:
- Users deposited ETH into a smart contract.
- They could then mint SAI at a 150% collateralization ratio—e.g., $150 worth of ETH to borrow $100 in SAI.
- The borrowed SAI could be used freely while maintaining exposure to ETH’s price movements.
This model enabled capital efficiency. For instance, a user could swap their SAI for more ETH, effectively creating a leveraged long position—achieving 1.6x leverage with $150 in initial capital.
To prevent insolvency, if ETH’s value dropped below the threshold, part of the collateral was automatically liquidated. Governance parameters—including collateral ratios and stability fees—were managed via MKR token voting.
Product-Market Fit Achieved Early
SAI saw rapid adoption, surpassing $100 million in circulation by late 2019. Its success inspired competitors like Liquity (LUSD), Frax, and RAI—validating the demand for decentralized alternatives.
DAI: Evolution to Multi-Collateral Stability (V2)
In 2019, MakerDao launched DAI, replacing SAI with a multi-collateral system. This allowed users to back DAI with various assets—including wBTC, stETH, LP tokens, and eventually real-world assets (RWA)—approved by MKR governance.
This upgrade significantly increased DAI’s scalability and resilience against volatility in any single collateral type.
Key Innovations in V2
Dai Savings Rate (DSR)
Holders can earn yield by depositing DAI into a dedicated savings contract. Currently offering 3.49% APY, DSR acts as crypto’s benchmark “risk-free” rate—with no minimums or fees.
Programmable Stability Module (PSM)
Introduced via MIP-21, PSM allows USDC to be swapped 1:1 for DAI without stability fees. This mechanism stabilized DAI’s peg during periods of high demand and became a key driver of supply expansion.
Real World Assets (RWA)
MIP-65 opened the door to RWAs. Treasury bonds now make up nearly 50% of DAI’s collateral base—a strategic shift mirroring traditional finance while generating consistent yield.
V2 Profitability: A High-Earning Protocol
With approximately **$9.1 billion in Total Value Locked (TVL)** and $4.6 billion in circulating DAI, MakerDao generates substantial revenue:
- Stability Fees: Charged on debt issuance from collateralized vaults (primarily ETH and wBTC).
- RWA Yield: Earned from U.S. Treasuries and other off-chain instruments.
- Liquidation Penalties: Additional income during market downturns.
- PSM & Flash Loan Fees: Minor contributors.
Annualized revenue now exceeds $138 million**, with over half coming from real-world asset returns. After operating expenses (~$38 million/year), net profit stands near $100 million annually**.
Despite this profitability, MKR’s market cap sits around $820 million—implying a P/E ratio of just 8.2, comparable to mature banks rather than high-growth tech protocols.
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Challenges in V2: Governance and Value Accrual
Despite strong earnings, V2 faces structural issues:
Governance Inefficiency
- Average proposal approval takes over two months.
- Voter turnout hovers between 5–10% of MKR supply.
- A single entity recently accounted for 88% of voting power.
This governance apathy slows decision-making and limits value capture—especially when adjusting stability fees in volatile markets.
Declining DAI Supply
DAI’s market share among stablecoins has dropped from 7% to ~3.5% since 2021 due to relatively high borrowing costs compared to rivals like Aave or Compound.
Weak Token Utility
MKR historically served only governance purposes—with no built-in mechanisms to return value to holders until recently.
Endgame: The V3 Revolution
Rune Christensen, MakerDao’s founder, has spent over a year designing V3 ("Endgame"), a comprehensive overhaul targeting scalability, efficiency, and long-term sustainability.
Core Objectives
- Achieve global accessibility for DAI.
- Decentralize MKR ownership and reduce governance burden.
- Expand ecosystem innovation via modular subDAOs.
- Enhance value accrual for MKR holders.
subDAOs: Specialized Units for Efficiency
V3 introduces autonomous subDAOs, each focused on specific functions:
- Two FacilitatorDAOs: Handle core governance operations.
- Four AllocatorDAOs: Drive DAI adoption and optimize collateral strategies (e.g., RWAs).
Each subDAO operates independently, earns its own revenue, and issues a SubDAO Token (SDT)—used for incentives and liquidity mining.
For example, an RWA-focused subDAO could bypass intermediaries like Coinbase (which takes ~3% yield cut) and directly invest in Treasuries—boosting returns by 1–2%. On $500 million in assets, that’s an extra **$7 million/year** in protocol income.
New Tokenomics: NGT and NSC
- Each MKR will split into 1,200 New Governance Tokens (NGT).
- A new wrapped stablecoin, NSC, will replace DAI in certain contexts.
Liquidity mining programs will distribute:
- 10 million NGT/year (~1.2% of supply)
- 35 million SDT/year per subDAO (~1.75%)
These incentives aim to reignite DAI/NSC usage and decentralize participation.
Sagittarius Engine: Locking Value into MKR
The Sagittarius Engine (SE) incentivizes long-term commitment:
- Users lock MKR (or NGT) to participate in exclusive liquidity mining.
- Early withdrawals incur a 15% penalty, burned permanently.
- 30% of all subDAO token emissions go to SE participants.
This creates sustained buy pressure on MKR while aligning incentives across stakeholders.
MKR Value Accrual in V3
Unlike many governance tokens, MKR gains multiple utilities:
- Access to premium yield opportunities via SE.
- Buybacks funded by Maker Elixir (MKR/DAI pool surplus).
- SubDAO-level Elixir pools (SDT/MKR) that recycle profits.
- Staking for validation on new MKR-centric chains.
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Investment Outlook: Why MakerDao Is Undervalued
MakerDao is already one of the most profitable DeFi protocols—with predictable cash flows from real-world assets and a strong track record of innovation.
Yet its valuation reflects stagnation—not growth:
- P/E ratio below 9 suggests pricing as a legacy bank.
- Market ignores V3’s transformative potential: modular subDAOs, improved governance, and compounding value accrual.
- Recent A16Z sell-offs (~15,000 MKR sold) may create short-term pressure—but also present accumulation opportunities.
With smart contract wallets holding most remaining DAI supply, organic demand is stable—and poised to grow under V3’s incentive structure.
Frequently Asked Questions (FAQ)
Q: What makes MakerDao different from USDT or USDC?
A: Unlike centralized stablecoins reliant on banks, MakerDao issues DAI through decentralized smart contracts backed by crypto or real-world assets—eliminating counterparty risk and enabling permissionless access.
Q: How does MakerDao generate profit?
A: Through stability fees on loans, yield from real-world assets (like U.S. Treasuries), and liquidation penalties—all contributing to protocol-owned surplus used for MKR buybacks.
Q: Why is MKR considered undervalued?
A: Despite earning ~$100M/year in profit, MKR’s market cap implies low growth expectations. V3’s upgrades could significantly increase revenue and token utility—making current prices appear deeply discounted.
Q: What is the role of subDAOs in V3?
A: subDAOs decentralize operations by focusing on specific tasks (e.g., RWA yield optimization), improving agility and allowing targeted innovation without burdening main governance.
Q: Will DAI be replaced by NSC?
A: No—NSC is a wrapped version used primarily within new liquidity mining programs. DAI remains the core stablecoin, with NSC serving as a transitional tool for adoption incentives.
Q: When will V3 launch?
A: While no official date is confirmed, key components like SmartBurn are expected to activate soon—marking the beginning of Endgame’s phased rollout throughout 2025.
MakerDao stands at a pivotal moment. Its past demonstrates resilience; its present reveals profitability; its future promises transformation. As V3 unfolds, it may well redefine what a decentralized financial protocol can become.