Thread by @RyanSAdams

1/ What if Dai becomes the main MoE & UoA in the Eth economy?

This resembles an older era of money when dollars could be redeemed for value in gold. Ether as the commodity money backing a general use currency

Let's explore the relationship between Ether & Dai:

2/ In order for Dai supply to grow it must collateralize tokenized value. Today each Dai is backed by $2-3 worth of Ether. In the future, other tokenized value beside Ether will be accepted in Dai, but it's hard to see a world where Ether doesn't remain the primary collateral

3/ Why Ether as Dai's primary collateral?

No better options. WBTC needs custodian trust. Tokenized securities need legal system settlement. Tokenized physical assets need both. Utility tokens are weak now & future-limited by DCF valuations. Ether doesn't have these limits

4/ Demand for Dai increases liquidity of its underlying assets. Why?

If Dai demand is higher than supply, Dai trades above $1. This causes CDP creators to mint more dai to sell for arb profits, which adds demand for CDP assets & corresponding shorts

Dai demand = Ether demand

5/ Ether used as an underlying CDP asset is different than Ether used to pay for transactions on Eth network. The latter is demand for a commodity, while the former is demand for a money—a commodity money.

Ether's use in Dai is more like gold than like oil

6/ On permissioned systems (e.g. centralized exchanges) Dai isn't differentiated from centralized stablecoins like GUSD/USDC. But Dai is the only stablecoin in town for trust-minimized applications like Augur

Trustless apps that need stability need Dai, no substitutes

7/ The long-term driver of Dai's growth (and importantly, the growth of its underlying collateral) is not demand for CDP loans, it's demand for a trustless stablecoin--if Dai fills that it becomes a unique product w/ strong MoE & UoA network effects

8/ So Dai needs monetary premium in Ether in order to expand. But it also reinforces Ether's monetary premium by using Ether as it's prime collateral. Demand for trustless stablecoin drives both Dai expansion & Ether monetary premium

A mutually beneficial arrangement. Symbiosis

9/ Note: some dismiss Dai--just Eth whales going margin long on Ether. But this view is a limited. This isn't the birth of an Eth margin product (we have those) it's the birth of a trustless stablecoin using Ether as a commodity money

Dai demand (not Eth leverage) drives the bus

10/ A commodity money backing a currency for everyday use

Is there a world where Ether becomes the SoV & Dai the MoE & UoA?

It wouldn't be the first time we've seen such an arrangement between commodity money & everyday currency. Remember the Gold Standard