On the 18th of November, MakerDAO will be launching the new and improved Multi-Collateral DAI. For those of you who aren't familiar with Dai, it is one of the leading stable coins and is "minted" when users lock ETH into a collateralized debt position (CDP). Once the Multi-Collageral DAI is implemented, users will be able to generate Dai by using both ETH and BAT with more forms of collateral being added later (Shevchenko, 2019). Maker hopes that the transition to Multi-Collateral Dai will provide a large number of benefits to the Dai ecosystem, but today I want to focus on the most important changes for day to day users of Dai. My goal in this article is to consolidate information and present a comprehensive overview that tells you the most important things you need to know about the transition to Multi-Collateral DAI.
Updated Naming Conventions
Before we can begin discussing how to prepare for the transition to Multi-Collateral DAI, we have to go over some name changes that will be implemented on the 18th of November. According to Maker’s official blog, there are three key naming changes that will be implemented immediately once Multi-Colalteral Dai is released (MakerDAO, 2019a). There will be no transition period with the change in naming conventions, so it is important to make sure you understand the changes before they happen.
As it currently stands, there is simply DAI. Current DAI is generated by locking up ETH and Dai is algorithmically pegged to $1 USD. On the 18th of November, what we know now as simply “Dai” will be renamed Sai. The “S” represents the fact that this current form of Dai is generated from a single type of collateral (ETH). The new Multi-Collateral DAI will simply be called DAI. Basically, the new product is getting the old name. To prevent confusion in this article, I will refer to the current, ETH backed form of Dai as Sai, and I will put MCD in parentheses each time that I use Dai to refer to the new Multi-Collateral Dai. Lastly, Collateralized Debt Positions will be renamed to vaults.
Now that we have the naming changes taken care of, I want to help users prepare for the transition to MCD. I will break these changes into two parts. This first section is the changes that can be done directly through MakerDAO and will be the same for all Sai users.
Every user who currently holds Sai in their own wallet will have the ability to do a 1 for 1 exchange and upgrade Sai to MCD by visiting migrate.makerdao.com.This functionality is not live yet, but I will do a tutorial once it goes online on the 18th.
Collateralized debt positions will also easily be rolled over on the same website. For a detailed flow chart of the conversion process, check out MakerDAO’s GitHub page.
Users will be able to earn interest on MCD through the Dai Savings Rate program (DSR). Many of you may be familiar with lending Dai on DeFi exchanges such as Compound or dy/dx, but DSR is different. Because the DSR program will be administered directly by the Maker Foundation, Maker believes that the DSR will give users a less risky way to earn interest on their Dai(MCD) than traditional DeFi platforms. In their words the DSR, “presents exactly the same risk as holding regular Dai” (Maker, 2019b). In other words DSR the interest generated by the DSR is “risk free” assuming that the user has already accepted the risks of holding Dai (MCD) itself.
DeFi, CDP, and Exchange Changes
The transitions described above should be pretty straightforward given that users can conduct them directly through MakerDAO. However, the Dai Ecosystem is much larger than people who simply hold Dai in a wallet or have a CDP (Vault after 18th). There are a host of different platforms that use Dai, but that MakerDAO does not directly control. One of the most important points is that different decentralized lending platforms are transitioning to the new MCD in different ways.
As it currently stands, dy/dx will automatically convert user’s existing positions and balances to the new MCD about 2-3 weeks after MCD launches (Yin, 2019). The transaction will happen automatically without any input from the users, and the only expected difficulties are a 2 hour downtime while the transition occurs. By contrast, Compound has stated that its existing protocols will continue to function normally. There will be no automatic conversion from Sai to MCD, and users are individually responsible for choosing when, how, and if to migrate from Sai to MCD (Leshner, 2019). Since different DeFi protocols are handling this transition, I can’t give any general advice. I suggest that you check with your specific DeFi protocol to determine what steps, if any, you want to take to prepare for the transition.
MakerDAO has urged trading exchanges to implement change its naming conventions on the 18th, but traders should keep in mind that Maker does not directly control these exchanges, and can only “suggest” that different DEXs, centralized exchanges, and wallets update their naming conventions. I don’t think this is too big of a concern because of the ability to exchange Sai for MCD on a 1 for 1 basis. If I unknowingly received Sai instead of MCD in a transaction, it would be a minor inconvenience, and I would simply do the conversion on MakerDAO’s official portal.
Although Maker is making it easy for users to upgrade from Sai to MCD, I personally believe that users should upgrade as quickly as possible. At some undetermined point in the future, Maker will implement an "Emergency Shutdown" for Sai. This emergency shutdown, sometimes also called "Global Settlement" will shutdown the old Sai ecosystem and make the underlying collateral available for redemption (Miguel, 2019). I want to point out that users won't loose their collateral during the emergency shutdown, but it would be much easier to simply roll Sai into MCD before the shutdown occours.
In summary, the transition from “Old Dai” to the new Multi-Collateral Dai is bringing a lot of exciting changes. I have tried to narrow these changes down to the most important considerations for day to day users of Dai. If you have Dai (Sai) or a CDP in your own wallet, you can easily upgrade to MCD using Maker’s official portal. If your Dai (Sai) or CDP is currently on an exchange or lending protocol, you will have to check with that specific protocol to determine how to handle the transition.
MakerDAO. (2019, November 9). What to Expect With the Launch of Multi-Collateral Dai. Retrieved November 13, 2019, from https://blog.MakerDAO.com/what-to-expect-with-the-launch-of-multi-collateral-dai/.
MakerDAO. (2019, September 14). An Update on the Dai Savings Rate in Multi-Collateral Dai (MCD). Retrieved November 13, 2019, from https://blog.MakerDAO.com/an-update-on-the-dai-savings-rate-in-multi-collateral-dai/.
Miguel, Alejandro. (2019, September 27). “MakerDAO Warns Dai Holders of Emergency Shutdown.” DeFi Rate, 30 Sept. 2019, https://defirate.com/dai-emergency-shutdown/.
Leshner, R. (2019, October 22). Support for Multi-Collateral DAI. Retrieved November 13, 2019, from https://medium.com/compound-finance/support-for-multi-collateral-dai-c8691d0ef794.
Shevchenko, A. (2019, November 9). MakerDAO Upgrade: Multi-Collateral Dai and Interest on Deposits. Retrieved November 13, 2019, from https://cryptobriefing.com/MakerDAO-multi-collateral-dai-interestdeposits/.
Yin, Z. (2019, November 7). Multi-Collateral DAI Migration on dYdX. Retrieved November 13, 2019, from https://medium.com/dydxderivatives/multi-collateral-dai-migration-on-dydx-e130575c4454.
Image Compiled from
Public Domain Pictures and Nathan Dumlao