Here’s Why a Meme Coin Rallies Amid a Market Sell-Off

Here’s Why a Meme Coin Rallies Amid a Market Sell-Off

September 24, 2020 DeFi 0


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Here’s Why a Meme Coin Rallies Amid a Market Sell-Off

By Matty – DCLBlogger

It was a sea of red in the market yesterday. But while Ether slid by almost 10% and all DeFi tokens plunged even deeper, one project astonished the crypto world accelerating the 10x increase it had seen in the last seven days:


A ticker most would pass off as a pump and dump. But is there more than meets the eye? The concept follows the road of coin pairings on DEX protocols like Uniswap, which allow traders to park funds and earn a part of the trading fees generated from volume on the pair. In this case, you would provide ETH-MEME liquidity on Uniswap.

But there’s one big difference.




Contributors: Marko Štemberger & Vishesh Choudhry

  • Liquidity mining schemes influencing the DAI peg. Observe the following moves in the diagram below:
    1. This period was most influenced by Sushi and other forks “Food DeFi” farms. These farms consist of Uniswap and later Sushiswap LP tokens including WETH/DAI. As a result, DAI was pulled from stablecoin nominated AMMs into WETH nominated AMMs. At the end of the period, MakerDAO executes the 60M debt ceiling increase for USDC-A, allowing for new supply to be minted.
    2. SAFE farm starts, which includes Balancer DAI/SAFE 98/2 pool as one of the four pools. The pool managed to pull a large amount of newly issued DAI and DAI from other venues (~155M at one point), which decreased DAI available in stablecoin and WETH nominated AMMs, pushing the price above $1.04.
    3. MakerDAO executes emergency executive vote to increase USDC-A vault debt ceiling and lowers the collateral ratio to 103%. Around the same time, the price of SAFE tokens suddenly decreases, rendering the high yield. DAI from SAFE farm and newly issued DAI is allocated to mostly stablecoin AMMs, decreasing the DAI price premium.
    4. Additionally, it is expected that MakerDAO governance will further increase the USDC-A debt ceiling & decrease the liquidation ratio to 101% on Friday. The change theoretically limits the DAI price premium to $1.01, given there is sufficient debt ceiling available for new issuance, which currently offers certain level of calamity for DAI short positions.

  • Liquidity mining remains a large factor in allocation of DAI across different trading venues and platforms. The chart below shows DAI balance in stablecoin nominated AMMs (Curve & Swerve), balance in ETH/DAI pools (Uniswap & Sushiswap), balance in Balancer DAI/SAFE 98/2 pool, and lastly log DAI price from Coinbase USD pair. The above explained dynamics, caused by different farms, have caused several DAI cash flows between different contracts in addition to newly issued dai, which is visible on the chart. As visible, the DAI price premium decreases as the allocation of DAI in stablecoin AMMs increases. Increased supply of DAI in ETH/DAI pools does decrease the price, but is limited in effect due to additional trading fees, network fees and volatility of ether.Lastly, DAI allocated in pools which consist of highly volatile assets and do not have another stablecoin or at least ether nominated liquid market, does not help decrease the DAI price premium, as arbitrage is not possible with this liquidity. Example of such a market is the current Balancer DAI/SAFE pool, which visibly negatively affected the price of DAI. Observe how the first red bar visibly lowers liquidity in WETH & stablecoin nominated AMMs, which causes the above $1.04 price spike. In the following bars, we have a total increase across balances which is ultimately a result of USDC-A DC increase, while on the fourth red bar, it is one again visible how DAI flow from SAFE pool to other pools, mainly stablecoin nominated pools, positively affected the price.