MakerDao’s valuation from Messari

13th August 2021

A more detailed overview of Maker

Maker’s progress:

  • The Maker Foundation announced its dissolution in May.
  • Real world assets: New Silver was introduced to provide real world loans.
  • Liquidation 2.0: Only few losses were incurred on 19 May this year. Thanks to the introduction of a more advanced liquidation system.

Significant increase in Dai:

Regarding Maker’s revenue, the demand for lending and DAI has pushed Maker’s monthly net income soaring, resulting in the profits of over $63 million for the first six months of 2021, and representing an increase of more than 7x as compared with the last six months of 2020. This performance can be divided as follows:

Lending revenues, derived from interest earned on loans, averaged approximately $7.7 million per month during the first half of 2021, up 13x from the second half of 2020. The growth is directly attributable to the uptake in loan volume as well as higher interest rates, which have risen progressively from 2% at the end of 2020 to 5% in April / May 2021 and now maintain at 2% (for the ETH-A vault) due to the decreased market demand for leverage. Lending revenues represent Maker’s most recurrent and stable source of income.

DCF valuation method:

Under the pessimistic, neutral and optimistic assumptions, Dai supply will reach $42 billion, $183 billion and $359 billion in 2031, respectively.

Interest revenues: To account for the proportion of DAI that is not backed by loans (generated from the PSM), we have assumed that 55% of the total DAI supply represents the lending base. We have applied an APR constant at 3% across all scenarios; this is lower than the average rate on the protocol during the last months of operations of around 4%.

Liquidation revenues: In terms of liquidations, we have assumed that a percentage of the average total DAI supply will be liquidated and thus subject to the 13% penalty fee. This percentage is set at 4% and projected to decrease linearly to 2% over the forecasted period. Note that the total amount of liquidated DAI represented around 6.7% of the average monthly supply over the past 12 months.

Trading fees: To explain the PSM (Price Stability Module), we have assumed that PSM volume grows at the same rate as the average total DAI supply. The base for 2021 is 3.3 billion in volume. The fees earned are set at 0.1% of the forecasted volume. This assumption results in this revenue stream representing 5% of lending revenues. Historically, this number has been around 7%.

Key assumptions:

Peer comparison:

In terms of valuation, Maker trades below Circle’s 2021E to 2022E EV/revenue multiples and below Circle’s 2023E EV/ EBITDA multiples, which suggests that Maker may be undervalued compared to its peer.

The scenario-based weighted average value of MKR may amount to $6,808.

Risks: MKR holders are subject to a certain level of credit risk as well as counterparty risks. Meanwhile, Dai relies heavily on USDC as collateral.

Maker has set itself as a top contender in both the stablecoin and lending markets, which are the two fundamental segments of the buoyant DeFi ecosystem. This has enabled Maker to scale and generate a net income of over $72 million for tokenholders over the past 12 months. Backed by a strong development team, community and a growing user base, we see Maker as poised to continue its growth in the coming years. However, to achieve the proposed valuation, it is necessary to overcome various challenges such as bridging the gap between demands for DAI and lending through innovative solutions such as RWA.

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