Andreessen Horowitz has made a major investment in a cryptocurrency project that algorithmically adjusts the supply of coins to keep their value stable.

The American venture capital firm, which has invested in crypto startups like CryptoKitties and OpenBazaar in the past, purchased 6 percent of the total supply of MKR tokens through its $300 million crypto fund, a16z. The fund committed a total of $15 million to the MakerDAO project and marked their investment as a “strategic purchase.” Holding MKR tokens will offer a16z the rights to govern MakerDAO and the Dai Credit System as it becomes the first decentralized autonomous stablecoin organization.

The Dai Credit System proposes to handle a decentralized stablecoin called Dai using smart contracts on the Ethereum blockchain. The self-governing ecosystem creates the durable token when people collateralize their assets to secure a loan. Dai becomes the central cryptocurrency to denote the loan amount that is equivalent to the USD value of the collateral deposit.

“A set of autonomous smart contracts coordinates and runs the Maker system, which means that anyone with an internet connection and collateral can create Dai without the need for trusted intermediaries,” a16z stated. “To ensure the system remains solvent, a network of market makers is incentivized to liquidate loans that risk becoming undercollateralized, thereby removing excess Dai from circulation and keeping the balance of Dai to collateral in check.”

Katie Haun, general partner at Andreessen Horowitz, said in a press statement that the future economy would belong to decentralized stablecoins. The former federal prosecutor, known to have led a probe into Mt. Gox and Silk Road, two of the most high profile criminal cases in the crypto industry’s history, recognized MakerDAO for being a “first mover and innovator” in the burgeoning stablecoin industry.

Haun’s confidence in the MakerDAO project could be attributed to the general inefficiencies of traditional cryptocurrencies, mainly price instability. In a16z’s recently-published blog post, Haun argued that crypto volatility had been to blame for their dismissive adoption rate. By particularly mentioning lending, one of the critical working areas of MakerDAO,  Haun, along with co-author, Jesse Walden, said that making a long-term loan in bitcoin would not be practical because of two underlying risks such loans pose.

“First that the loan would be repaid, and second, whether the bitcoin would be worth more or less at the time the loan came due,” they wrote.

However, the Dai token is itself backed by ether (ETH), a cryptocurrency that has lost 80 percent of its value against the U.S. dollar this year. To ensure the pegging does not rely on only one cryptocurrency, MakerDAO plans to introduce a diverse basket of collateral types, which would include tokenized equities and fiat-backed stablecoins.

Featured Image from TechCrunch/Flickr

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