MakerDAO looks to more than double the DAI savings rate MakerDAO looks to more than double the DAI savings rate
If the new proposal is approved, the hike in DSR could lead to an increase in the borrowing rates for stablecoins across the DeFi ecosystem.
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Updated: May. 27, 2023 at 2:29 pm UTC
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Decentralized finance (DeFi) protocol MakerDAO increased its DAI savings rate (DSR) to 1% in December 2022. The move led to over 35 million DAI being deposited within a month, as per MakerDAO.
A new proposal to increase the DSR to 3.33% is being discussed. The proposal was put forth by risk management firm Block Analitica and submitted by MakerDAO’s Risk Core Unit Team. The proposal must be approved through an Executive vote before the changes are applied.
The DSR enables users to lock up MakerDAO’s DAI stablecoin in DSR smart contracts and earn interest.
When users borrow DAI against collateral like Ethereum (ETH) or wrapped Bitcoin (WBTC), they must pay stability fees, which fund the DSR. Thus, the new proposal also aims to change the stability fees for certain assets used as collateral.
According to MakerDAO, the DSR is a key monetary policy lever. It helps balance the demand and supply of DAI by either incentivizing or disincentivizing users from locking up DAI. DSR is often adjusted to deal with short-term changes in the market conditions of the Dai economy.
Broader market implications
A Block Analitica executive noted on Twitter that the rise in DSR could be a “huge tailwind for the entire defi ecosystem.”
Phoenix Labs co-founder Sam MacPherson, previously a lead developer at MakerDAO, believes the rise in DSR will likely have broader market implications. He tweeted:
“Borrow rates at your favorite lending platforms are about to jump to ~4.5% as Maker drastically raises the cost of capital.”
Lending protocols like Aave and Compound offer up to 2.62% rates on stablecoins like USD Coin (USDC), Tether (USDT), and DAI. The change would thus allow MakerDAO to offer higher rates than its competitors in hopes of bringing more capital.
This change could result in higher borrowing rates for stablecoins in the DeFi ecosystem. If traders choose to exchange their stablecoins for DAI or withdraw from other lending platforms to deposit DAI into DSR contracts, the overall supply of stablecoins would decrease. As a consequence, borrowing costs would rise.
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Monika Ghosh
In 2020, Monika immersed herself in crypto, maintaining skepticism yet firmly believing blockchain could address key issues like financial disparity and transparency. A book-lover, she's also a passionate food enthusiast.
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Maker is a decentralized autonomous organization on the Ethereum blockchain seeking to minimize the price volatility of its own stable token — the Dai — against the IMF’s international currency basket SDR.
Dai
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Dai (DAI) is a cryptocurrency token and operates on the Ethereum platform.