Money 2.0 Stuff: You had one job

Monetary policy is hard, man. Don’t take it from me: Jeffrey Lacker, the President of the Federal Reserve Bank of Richmond, once admitted that its “ability to effect real economic activity...can be quite limited and is almost always short-lived. Real activity is driven predominantly by factors beyond the control of monetary policy.”

In the land of MakerDAO, the overwhelming exogenous factor is speculation around Ether’s price appreciation. It is no coincidence that, as Dai supply and Ether lock up in MakerDAO continues to increase week on week, the ETH-USD long-short ratio has simultaneously reached an all time high of 4.98 to 1. Just as the average CDP liquidation price can be seen as a crowdsourced prediction of market lows, outstanding Dai supply should be treated as a proxy for speculator sentiment. Of course, as anyone familiar with the term ‘long squeeze’ will recognize, this precipitous growth is unlikely to end well.