There is no reason, necessarily, that DAI would be worth more than 1$ just because ETH drops. In fact it may be worth less than $1 not only because of supply and demand factors but because of the increased risk that it becomes undercollateralized.
You could absolutely have market conditions where people want no part of DAI or ETH, and then it becomes an imbalance (if the amount of DAI is large).
It is very similar to what happens with SBD.
Also, SBD isn't created out of nothing. It is converted from STEEM in the reward pool. It is the STEEM in the reward pool that is created out of nothing (inflation).
but SBD is debt.
With DAI you look up 300% of value of ETH. If the price of DAI goes under 1$ you can buy it cheaper and get your ETH out.
With the Lock up it is IMO more scaleable. Because if need more, its possible to lock up more.
If ETH should fall dramaticly ( like 90%) it can be dangerous and its the same to SBD. You are right.
But on the other side, ETH must fail really hard to crash 90%. If DAI is 10x bigger and ETh Crash, there are a lot of ETH is lockt away.
It needs to crash in a really short time over 60% to get really dangerous. If the DAI market would be that big, i dont think this happens ( maybe)?
If people trust in DAI, there trust in ETH.
Btw, im not a ETH fan, but i like the idea to lock up and generate a Stable coin. Because is scaleable if needed.
And to be logic, if ETH falls under the lock up, people would clear there DAI order. Otherwise they would lose money.
From the economic perspective it should work.
Price falls -----> DAI gets cleard ----> less DAI.
I dont say DAI is perfect, but maybe in a long term vision we can upgrade SBD, to get a better version of it :)
DAI is literally debt! What do you think the "D" in CDP stands for?
You lock up ETH and are lent (i.e. debt) DAI as long as you leave the ETH locked up. In order to repay the loan and get your ETH collateral back, you have to return the DAI.
I don't really agree with this. Bitcoin has dropped 90%, even 95%, and didn't fail. ETH dropped over 90% (almost 95%?) from December 2017 to December 2018 and that wasn't considered failing; it was just a price drop. It is just the nature of highly volatile crypto assets that big drops are possible (as are big increases). It's not desired to see that kind of drop but is almost expected, and it has to be considered in analyzing something like DAI.
I don't mean to say that DAI would certainly fail catastrophically in the case of a big drop in ETH (and/or decline in organic demand for DAI itself) but then again SBD didn't entirely fail either despite STEEM dropping roughly 99%! It suffered a temporary haircut period but has now mostly recovered.
So overall I would say we are still in an experimental period of figuring out how these systems should work best. You might also be interested to read this critique of DAI as not being scalable. (I would not claim that SDB is actually any better.)
Thanks for the answer.
I will think about this :)
I dont say ETH would fail. I think if the ETH price would drop in a short time it can be really dangerous for DAI.
Im happy you know what you talking about and im sure in the future, if many people think about, we will find a really good solution for SBD :)
Btw, i would support Steem donation to DAO.
Thank you for the discussion.
thank you too :)