Research Summary
The report from Ouroboros Capital provides an update on MKR, reiterating a bullish view despite a recent retracement. The report suggests that MKR will soon test the $1,500 – $1,600 range due to several factors including the reduction of EDSR yield to 5%, the expansion of the BlockTower Andromeda vault, higher DAI supply, and higher borrow fees. The current retracement is seen as temporary and a result of profit taking in light of the recent altcoin correction.
Key Takeaways
Retracement and Recovery
- Second MKR Retracement: This is the second time MKR has experienced a >20% retracement since its breakout in July, presenting a dip buying opportunity.
- Expected Recovery: MKR is expected to test the $1,500 -$1,600 range as concerns over the protocols profits fade.
- Profit Erosion: Recent erosion of MKR’s profits by the 8% EDSR is viewed as temporary.
Key Catalysts
- Reduction of EDSR: The recent governance proposal to reduce EDSR to 5% is expected to reverse the compression of MKR profits.
- BlockTower Andromeda TVL Expansion: The BlockTower Andromeda vault currently has a debt ceiling of $1.28bn with only 652mn utilization, indicating potential for more DAI earning a 4.5% fee for the protocol.
- Higher Borrow Fees from SPK Farming: The idea of rewarding users that borrow via Spark with SPK tokens is expected to subsidize borrow rate on Spark/MKR and allow MKR to take share from other borrow/lend platforms.
- Higher DAI Supply: The market is expected to view DAI supply as a simple proxy of MKR’s revenue generating ability, similar to how banks income grow as deposit grows.
Actionable Insights
- Investigate the Potential of MKR: Despite the recent retracement, MKR presents a potential opportunity for growth due to several catalysts.
- Monitor the EDSR Reduction: The proposed reduction of EDSR to 5% could have significant implications for MKR profits.
- Consider the Impact of BlockTower Andromeda TVL Expansion: The expansion of the BlockTower Andromeda vault could lead to increased DAI earnings for the protocol.
- Assess the Effect of Higher Borrow Fees and DAI Supply: The potential introduction of SPK rewards for borrowing and an increase in DAI supply could both contribute to MKR’s revenue generation.
