About the nature of dai as a ponzi scheme:
As it has been explained to me, new dai is only generated by borrowing, and this borrowed dai must be paid back with interest. That means that there is always more dai denominated debt than there is dai, because the dai to pay the interest was never created. Therefore, the dai ecosystem is only stable so long as an increasingly large number of people borrow dai, since old debt can only be paid with new debt. I suppose this is appropriate for an asset which is soft-pegged to the dollar, since new dollars are created in the same fashion and therefore have the same problem.
About wealth transfers caused by dai:
If money is lent to some productive enterprise, then everyone in the world can benefit if the enterprise is able to expand its production because of the loan. The enterprise gets to expand, the lender earns interest, and everyone else is better off because there is more stuff than before to buy with their currency. However, since nothing tangible is ever produced with crypto trading, it is always a zero-sum game. There is a transfer of wealth from late-comers to the crypto world to those who came before, and there is likewise a transfer of wealth within the crypto community whenever people are trading or using this complicated defi nonsense. The best-case scenario for everyone involved with relation to bitcoin, for example, is that early adopters take purchasing power from late adopters, late adopters lose less money than they would have if they had kept their dollars, and the US government collapses because it is no longer able to steal purchasing power by inflating its currency, since the currency no longer has any purchasing power to steal. But for this post, I am interested in the transfer of wealth caused by the existence of dai. I will assume for simplicity that borrowed dai is only used to purchase more eth.
It seems to me that if ethereum prices are rising and this rise is not generally understood by the crypto world (as currently seems to be the case), then the interest on borrowing dai will be less than the price appreciation of ether. This means essentially that borrowers get free money, eth gets a little price boost from the borrowers purchasing more of it, and this purchasing power is taken from the people foolish enough to hold or lend dai.
If ethereum prices were rising and it was well understod by the market how quickly it would rise, then it seems to me that dai interest rates would need to rise so that it made little difference whether one held eth, borrowed dai to buy eth, or lent dai.
If ethereum prices were not rising as fast as people expected (or were even falling), then the interest rate from lending dai would be greater than the price appreciation of ether. That would mean that borrowers would be ruined for the benefit of lenders. Interestingly, whether eth is rising or falling, if some people are borrowing money to buy more of it, that would see to give it a price boost from increased demand. So ethereum holders seem to benefit from the existence of dai no matter whether it’s a bull or bear market.
I suppose if the existence of dai as a means of investment distracts attention from eth more so than the borrowing of dai brings extra capital to eth, then dai could have a negative effect on the price of ether. But I’m not sure if this would happen, because it doesn’t seem to me that dai has a reason to exist unless people want to borrow it to buy crypto assets.
About the possible collapse of dai:
If the price of ethereum were falling, and this was well understood by the crypto market, then people would try to pay off all their dai debts quickly. This is a massive problem, because as stated in the first paragraph, the dai to pay off all debts does not exist. Dai would necessarily lose its peg to the dollar, because as debts were being paid off and dai burned, there would eventually only be 1 dai left to try to cover what could potentially be millions or billions of dollars’ worth of collateral in eth.
Dai is a ponzi/pyramid scheme exactly like the USD it is soft-pegged to. The existence of dai ought to have some positive influence on the price of ethereum so long as people continue to borrow dai to purchase eth. (I suppose it would have a positive influence on the price of whatever asset people used it to purchase, but I have only used eth to keep the thought experiment simple). It is only possible to make money by lending/borrowing dai so long as there are market inefficiencies, and you only make this money at the expense of a loser. The dai ecosystem will collapse in a deflationary environment.
If I’m wrong about any of this, I’d like to have it explained to me.