MakerDAO Emerges as the Last Stablecoin Standing as Basis Shuts Down and Tether Faces Mounting Scrutiny

The Incident

April 2018 is proving to be a pivotal month for the stablecoin landscape. As the broader cryptocurrency market stages a modest recovery—with Bitcoin climbing back above $6,900 on April 7 and Ethereum holding at $385—the stablecoin sector is experiencing its own upheaval. Algorithmic stablecoin project Basis, backed by major venture capital firms, is quietly shutting down operations due to regulatory concerns, with the SEC classifying its stabilization mechanism as an unregistered security. Meanwhile, Tether (USDT), the dominant stablecoin with a $2.29 billion market cap, continues to face questions about its dollar reserves and banking relationships. Into this void steps MakerDAO, whose decentralized stablecoin DAI has emerged as the most credible alternative in an increasingly uncertain landscape.

The timing could not be more significant. As institutional players like George Soros signal interest in cryptocurrency trading, the need for reliable on-ramps and stable value anchors has never been greater. The collapse of Basis and the persistent questions surrounding Tether have created an opening that MakerDAO is uniquely positioned to fill.

Technical Post-Mortem

MakerDAO’s technical architecture represents a fundamentally different approach to stablecoin design. Unlike Tether, which relies on a centralized issuer holding dollar reserves in bank accounts, MakerDAO issues DAI through a system of Collateralized Debt Positions (CDPs) backed by ETH locked in smart contracts. Users deposit ETH into a CDP and receive DAI in return, with the system requiring over-collateralization—typically 150% or more—to account for ETH price volatility.

With ETH trading at $385 on April 7, a user depositing 10 ETH (worth $3,850) could generate approximately 2,567 DAI at the standard 150% collateralization ratio. If ETH’s price drops significantly, the CDP becomes under-collateralized and triggers automatic liquidation, with the collateral sold to cover the outstanding DAI and a penalty fee applied. This mechanism creates a self-sustaining stability engine that requires no centralized issuer, no bank account, and no trust in a single entity.

The system is governed by MKR token holders, who vote on critical parameters including stability fees (the interest rate on CDPs), collateralization ratios, and risk parameters. In April 2018, MKR tokens are trading at approximately $905—a valuation that reflects the market’s assessment of the protocol’s governance value. Notably, Ethereum founder Vitalik Buterin has reportedly acquired around 1,071 MKR tokens, a significant vote of confidence from one of the space’s most influential figures.

The smart contract infrastructure has undergone multiple audits, and the MakerDAO team has been transparent about the system’s limitations, particularly its reliance on ETH as the sole collateral type—a single point of failure that the team plans to address with multi-collateral DAI in future iterations.

Governance Impact

MakerDAO’s governance model represents one of the earliest experiments in decentralized protocol governance. MKR holders participate in executive votes that directly control system parameters, creating a layer of decentralized decision-making that is absent from both Tether’s centralized model and Basis’s now-abandoned algorithmic approach.

The shutdown of Basis illustrates the regulatory minefield that stablecoin projects must navigate. Basis’s three-token model—comprising base coins, bond tokens, and share tokens—was deemed too similar to securities by the SEC, forcing the project to cease operations despite having raised $133 million from investors including Andreessen Horowitz, Google Ventures, and NFX. This regulatory pressure reinforces the value of MakerDAO’s more conservative approach, which avoids offering investment returns or profit-sharing mechanisms that could trigger securities classification.

The contrast between Basis’s failure and MakerDAO’s continued operation highlights an important governance principle: protocols that minimize regulatory surface area while maximizing decentralization are more likely to survive in the current enforcement environment. MakerDAO’s governance through MKR token voting creates a clear separation between protocol operation and regulatory liability.

TVL Shifts

While the term “Total Value Locked” has not yet entered the mainstream crypto lexicon in April 2018—DeFi as a category is still in its earliest days—the amount of ETH locked in MakerDAO CDPs provides a meaningful metric of adoption. As Ethereum trades at $385, the total value of collateral in the system represents a growing but still modest portion of the overall ETH supply.

The competitive landscape for stablecoins tells a revealing story. Tether dominates with a $2.29 billion market cap and $1.33 billion in daily trading volume—making it the most liquid stablecoin by far. But Tether’s daily volume represents 58% of its market cap, suggesting heavy circulation and potential concerns about redemption capacity. DAI’s market cap is orders of magnitude smaller, but its fully decentralized nature and transparent on-chain collateral make it fundamentally different from every other stablecoin in existence.

Other stablecoin experiments from this period—including TrueUSD and Paxos Standard—are also entering the market, but none offer the fully decentralized, trustless model that MakerDAO provides. This architectural distinction is likely to become increasingly important as regulatory pressure on centralized stablecoin issuers intensifies.

Long-Term Prognosis

MakerDAO’s position in April 2018 is that of a protocol at an inflection point. The project has proven that decentralized stablecoins are technically feasible, but significant challenges remain. The reliance on ETH as sole collateral exposes DAI to systemic risk if ETH experiences a severe downturn. The governance system, while functional, has yet to be tested under extreme market stress. And the user experience of interacting with CDPs remains complex enough to limit adoption to technically sophisticated users.

However, the external environment is increasingly favorable. The collapse of Basis eliminates a well-funded competitor. Tether’s ongoing regulatory and transparency concerns create demand for alternatives. The broader crypto market recovery—led by Bitcoin’s bounce above $6,900 and the altcoin surge that has seen EOS gain 30% in a week—provides a more favorable backdrop for DeFi experimentation.

Most importantly, the philosophical alignment between MakerDAO and the broader Ethereum ecosystem is a powerful advantage. As the first truly decentralized stablecoin operating on Ethereum, DAI benefits from network effects, developer attention, and the broader push toward decentralized finance. The fact that Vitalik Buterin himself has taken a meaningful MKR position signals that the Ethereum community views MakerDAO as essential infrastructure.

The road ahead is long and uncertain. Multi-collateral DAI, improved governance tooling, and better user interfaces are all needed before MakerDAO can challenge Tether’s dominance. But in a market where the alternatives are either shutting down or facing existential regulatory questions, MakerDAO’s quiet, methodical approach to building decentralized financial infrastructure looks increasingly prescient.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.