Maker Token's Rally: Exchange Balance Surges Following 45% Price Increase
Over the past 24 hours, there has been a notable 5% increase in the exchange balance, reaching its highest point in nearly a month.
The recent surge in blockchain activity associated with MakerDAO's MKR token is raising caution flags for bullish investors, especially in light of MKR's impressive 45% price surge within the last four weeks.
Data from Coinglass reveals that the quantity of MKR held in wallets controlled by centralized exchanges has surged by 5%, totaling 71,190 MKR (equivalent to $106 million) in the past day. This surge brings the total exchange balance to its highest level since September 3. It's worth noting that MakerDAO stands as one of the leading crypto lending protocols and is responsible for issuing the $5 billion stablecoin, DAI. Within the MakerDAO ecosystem, sDAI represents DAI that has been deposited in the protocol's DAI Savings Rate (DSR) module.
The significant uptick in the exchange balance could potentially introduce price volatility, particularly towards the downside. An increase in the exchange balance is generally interpreted as an indication of investors' readiness to sell off or liquidate their holdings, or to utilize coins as collateral in derivatives markets.
Analytics firm Santiment highlighted this influx of MKR into exchanges, cautioning that it could signify a temporary local peak, particularly in light of MKR's recent price surge and heightened activity in addresses.
Historical data indicates that prior spikes in the exchange balance, observed in late last month and mid-March, aligned with interim price peaks.
MKR has been on a remarkable rally since it successfully defended the psychological support level of $1,000 at the end of last month. This surge is attributed to its strategic investments in short-term U.S. Treasury notes, which are currently generating yields exceeding 5%.
Parsec-tracked data shows that MakerDAO has allocated over $2 billion of its substantial stablecoin reserves into U.S. Treasury notes. Parsec Research's weekly update from September 22 underscored MKR's continued strength, particularly due to its early adoption advantage in investing over $2 billion in short-term bonds through off-chain structures since February 2022. This substantial real-world assets (RWA) portfolio enables MKR to offer a 5% Savings Rate on DAI and conduct buybacks of MKR with excess profits. The success of sDAI, coupled with a consistent flow of MKR buybacks facilitated by the Smart Burn Engine, has contributed to MKR's ongoing outperformance compared to its DeFi 1.0 counterparts.
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