MakerDAO: DAI Savings Rate (DSR) to Reach 8% in Effort to Spur DeFi Growth

By Tsunami 07/28/23 8:12 AM

MakerDAO, the governing body behind the popular Maker Protocol, has passed a groundbreaking proposal aimed at stimulating growth and attracting new users to the DAI stablecoin. The proposal, put forth by Rune Christensen, the visionary mind behind MakerDAO, suggests a temporary increase in the interest rate offered to DAI holders, effectively raising the DAI Savings Rate (DSR) from 3.19% to a maximum of 8%.

Dubbed the Enhanced DAI Savings Rate (EDSR), this new system is designed to entice users with an unprecedented yield, much higher than what can be found on other major lending platforms in the current market. The move is anticipated to fuel interest and liquidity, propelling the DAI stablecoin further up the ranks among the top stablecoins in the market.

Rune Christensen emphasized the importance of growth as the lifeblood of the project, signaling a strategic decision to expand the DAI ecosystem. The DeFi industry thrives on adoption and network effects, and the proposed interest rate hike is seen as a proactive measure to encourage more users to participate in the DAI ecosystem.

The DAI Savings Rate (DSR) has been a crucial element in stabilizing the total supply of DAI; however, it has not been able to generate substantial new demand or sustain growth in capital inflow. As a result, DAI’s market capitalization experienced fluctuations, reaching its peak at around 1.4 trillion yen ($10 billion) in February 2022, but subsequently dropping to approximately 640 billion yen (approximately $4.6 billion) amid the turbulence in the crypto asset market, including the FTX bankruptcy.

By setting the interest rate at a higher value within the DeFi landscape, MakerDAO aims to attract more attention from other DeFi protocols and foster greater adoption of the DSR model. The hope is that DAI’s compelling interest rate will convince users to stay within the ecosystem, despite the complexities often associated with transitioning between different DeFi systems.

The Enhanced DAI Savings Rate (EDSR) system is designed to be flexible and responsive to the utilization rate of the DSR. As utilization increases, the EDSR will decrease accordingly, eventually disappearing once the utilization rate reaches a certain threshold. Notably, the EDSR will only decrease over time and will not increase again even if the DSR utilization decreases.

The proposal has garnered strong support from the MakerDAO community, with over 99% of the votes in favor of its implementation. The collective enthusiasm suggests a high level of confidence in Rune Christensen’s vision and strategy for the future of DAI and MakerDAO.

In addition to the interest rate hike, the MakerDAO community has also voted in favor of a monthly buyback of the governance token, Maker (MKR). The buyback is expected to amount to approximately ¥980 million (about $7 million) worth of MKR each month, according to Sam McPherson, a former MakerDAO staffer now involved with the Spark Protocol.

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