MakerDAO: As DAI supply hits 18-month low, what’s next?

• DAI supply has fallen to its lowest in 18 months.
• MKR’s Awesome Oscillator has hinted at a decline in token accumulation.

The total supply of MakerDAO’s [MKR] decentralized stablecoin DAI, has fallen to its lowest level since August 2023, according to data from MakerBurn.

A decrease in DAI supply stems from the protocol’s Collateralized Debt Position (CDP) model, which operates as a self-regulating market. 

When the prices of the assets backing the stablecoin decline, the interest rate for borrowing DAI on the platform rallies.

This makes borrowing costlier, prompting new borrowers to steer clear of taking out new loans and making existing borrowers quickly repay their loans to avoid high fees.

All of these then culminate in a decrease in the overall DAI supply.

AMBCrypto observed that most of the decline occurred between the 30th and 31st of January when DAI’s supply fell by 6%.

For context, the stablecoin’s supply decreased from 5.2 billion to 4 billion during the 24-hour period.

Source: MakerBurn

Why you need to be cautious

At press time, MakerDAO’s native token MKR exchanged hands at $2,009, according to data from CoinMarketCap.

Readings from MKR’s Moving Average Convergence Divergence (MACD) indicator showed that the bears regained market control on the 18th of January.

However, they have failed to initiate any significant price decline.

This is because the altcoin continues to enjoy a sustained stream of demand. At press time, its Relative Strength Index (RSI) was 56.14 and was in an uptrend.

This suggested that while a bear cycle might have commenced, the bulls continued to accumulate MKR tokens. 

Confirming the steady liquidity inflow into the MKR market, its Chaikin Money Flow (CMF) was in an uptrend above the zero line at press time.

The returned CMF value of 0.03 was a sign of strength in the market. It showed that token accumulation exceeded selling activity.

However, while accumulation persisted, the state of MKR’s Awesome Oscillator (AO) showed the need for investors to be cautious.

This indicator measures the strength and direction of a trend of an asset over a given period. At press time, MKR’s AO indicator returned red upward-facing histogram bars.

How much are 1,10,100 MKRs worth today?

This suggested that the accumulation pressure was weak compared to the underlying bearish sentiment, which had a longer-term horizon. 

Source: TradingView

This signaled that there might be a potential price reversal once buyer exhaustion sets in.