In a move that signaled growing institutional confidence in decentralized finance long before “DeFi” became a household acronym, venture capital giant Andreessen Horowitz announced a $15 million investment in MakerDAO on October 1, 2018. The deal, spearheaded by Kathryn Haun — a former U.S. Justice Department digital currency task force leader who now co-leads the firm’s crypto fund — marked one of the most significant bets on Ethereum-based stablecoins during the depths of the 2018 bear market.
TL;DR
- Andreessen Horowitz invested $15 million in MakerDAO, purchasing 6% of all MKR governance tokens
- The deal was the first led by Kathryn Haun, a former DOJ prosecutor turned crypto VC
- MakerDAO’s Dai stablecoin maintained its dollar peg despite Ethereum losing 80% of its value
- The investment gave a16z 6% voting power in the network’s governance, or 7% including a prior December 2017 investment
- The move signaled institutional interest in decentralized stablecoins during the peak of crypto winter
A Governance Play, Not Just an Equity Stake
Unlike traditional venture investments, Andreessen Horowitz didn’t buy equity in a company. Instead, the firm purchased Maker Coin (MKR), a cryptocurrency that doubles as a governance instrument on the MakerDAO network. Out of 1 million MKR coins in circulation, a16z acquired 6%, giving them proportional voting power over the protocol’s key financial parameters. Including an earlier December 2017 investment from another a16z fund, the firm’s total stake reached 7% of all MKR tokens.
This structure meant the firm’s returns would be tied directly to the success of the MakerDAO ecosystem — a fundamentally different model from traditional startup investing where returns come from equity appreciation or acquisition.
How Dai Keeps Its Peg in a Freefall Market
At the heart of MakerDAO’s system is Dai, a cryptocurrency designed to maintain a stable value of one U.S. dollar. The mechanism works through over-collateralization: users lock up Ether in smart contracts and receive Dai in return. MKR holders govern the “collateralization ratio” — the amount of Ether required to mint each Dai — along with other financial levers.
What made this investment particularly audacious was the timing. Ethereum had plummeted roughly 80% since Dai’s launch in mid-December 2017, with ETH trading at approximately $230 on October 1, 2018. Yet Dai had maintained remarkable price stability throughout the collapse. The system’s automatic liquidation auctions — which publicly sell collateralized Ether to the highest bidder when values drop — proved effective at keeping reserves solvent even during dramatic market declines.
The Economics Behind the Bet
The investment thesis relies on a built-in economic flywheel. When Dai holders repay their loans to reclaim their Ether collateral, they pay interest. Those fees are used to buy back and “burn” MKR tokens, permanently reducing the supply. Fewer tokens in circulation should, in theory, increase the value of remaining ones — similar to a corporate share buyback program.
For Andreessen Horowitz, the bet was clear: if Dai adoption grows and the system remains stable, the increasing fee revenue would drive MKR scarcity, boosting the value of their 7% stake.
Risks and Criticisms
Not everyone shared the optimism. Critics argued that in a severe market freefall, the value of collateralized Ether could drop faster than the liquidation mechanism could respond, potentially leading to systemic insolvency. The MIT Technology Review had warned about stablecoins potentially ignoring basic economic principles.
MakerDAO founder and CEO Rune Christensen acknowledged the risk but drew a clear line: for the system to fail, “the crash would have to be much more severe — a bigger crash and much quicker. Instead of being over the course of several months or weeks, it would have to be in the span of an hour.”
Why This Matters
The Andreessen Horowitz-MakerDAO deal was a watershed moment for crypto investing. It demonstrated that top-tier venture capital was willing to move beyond simple equity plays and engage directly with decentralized governance structures. The fact that Dai had survived an 80% ETH drawdown gave investors like Haun confidence that the underlying mechanics were sound.
At Bitcoin’s price of approximately $6,590 on this date, the broader crypto market was firmly in winter. But the seeds of what would become a trillion-dollar DeFi ecosystem were being planted — and a16z was positioning itself at the forefront with an investment model that would define crypto VC strategy for years to come.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always do your own research before making investment decisions.