- DAI supply has fallen to a new low.
- MKR’s price rose, but a risk of a possible decline remained.
The complete range of MakerDAOs [MKR] decentralized stablecoin DAI has fallen to a new low, data from MakerBurn.
At 4.42 million DAI at the time of writing, the stablecoin’s supply was at its lowest level since August 2023.
This has happened despite the double-digit increase in total value (TVL) within the decentralized finance (DeFi) ecosystem since early March.
According to DefiLlamas According to data, the DeFi sector’s TVL has increased from $87 billion to $99 billion over the past eight days.
The drop in DAI’s supply is often tied to the protocol’s Collateralized Debt Position (CDP) model, which is designed to help maintain the stablecoin’s value against the US dollar.
When the value of the assets backing DAI falls, the interest rate for borrowing DAI on MakerDAO rises.
These high borrowing costs discourage new borrowers from seeking loans on the platform and push existing borrowers to pay back their debts quickly to avoid higher interest rates.
All of this is known to result in a decline in DAI’s overall supply.
However, recent weeks have been marked by a rally in the values of the crypto assets that support DAI, such as Ethereum. [ETH]Packaged Bitcoin [WBTC]Basic attention token [BAT]and Composite [COMP].
Therefore, the recent decline in DAI’s supply may be due to a general decline in interest in seeking stablecoin loans on MakerDao.
MKR excels, but…
Despite the decline in DAI supply, the overall market rally has led to growth in MKR’s value.
At the time of writing, the altcoin was exchanging hands at $2,367, the highest price level since April 2022, according to data from CoinMarketCap.
However, a review of the token’s price movements on a one-day chart revealed the possibility of short-term downside.
As MKR’s price surges to a two-year high, the Awesome Oscillator (AO) indicator has shown mostly red, upward-slanting bars over the past week. This indicator measures market momentum.
Source: TradingView
How much is 1,10,100 MKRs worth today?
When the red bars point upwards, it indicates a potentially bearish signal.
Therefore, a difference between an asset’s price action and its momentum, as measured by its AO, could indicate that the uptrend may not be sustainable, and that there may be a possibility of a trend reversal soon.