MakerDAO Considers Increasing the DAI Savings Rate (DSR)

MakerDAO Considers Increasing the DAI Savings Rate (DSR)

  • MKR governance coin from MakerDAO has grown by almost 20% this year.
  • Maker is the second-largest protocol in DeFi by value locked, valued at $6.75B.

The risk management company Block Analytica has suggested raising the Dai Savings Rate (DSR) from 1% to 3.3%. By putting their tokens into the Maker system, users of the DSR may get a dividend on DAI, the fourth-largest stablecoin in the cryptocurrency market.

Proposal to Increase DSR

The cost of capital in DeFi is determined by the DAI Savings Rate, according to Sam MacPherson, co-founder of the Spark Protocol, a financing initiative based on DAI.  “Supply-borrow ratios will rise on all secondary markets by raising the DSR to 3.3% as accessible liquidity disappears.”

The MKR governance coin from MakerDAO has grown by almost 20% this year.

It is expected that an improved DSR will attract more money since other significant lending protocols like Aave and Compound don’t provide rates over 2.6% on significant stablecoins like USDC, USDT, and DAI.

As there will be fewer stablecoins available to borrow overall in DeFi if traders either exchange their USDC and USDT for DAI and place their stablecoins into the DSR or even if  they simply withdraw their DAI from other lending protocols to deposit in the DSR, stablecoin rates will likely increase throughout DeFi.

According to MacPherson, the yield from the DSR can be understood as a cost incurred by Maker. Maker is the second-largest protocol in the decentralized finance (DeFi) space, with a total value locked of $6.75 billion.

However, there is no unanimous agreement on whether depositing DAI into the DSR is the obvious choice. Brice Berdah, the Head of Growth at Liquity, the company behind the LUSD stablecoin, argues that the Stability Pool of their protocol often provides a much higher return on LUSD.

Maker is currently undergoing significant modifications as part of its ‘Endgame’ plan introduced by its creator, Rune Christensen. DAI, the associated stablecoin, is also evolving. Over the past month, DAI’s reliance on USDC, the second-largest stablecoin valued at $29 billion, has decreased from 40% to 25%. This change is driven by an increase in real-world assets like US Treasuries in the reserves backing the token.

One of the recent adjustments is the DSR, which saw an increase from 0% to 1% in December. This change prompted a $77 million deposit from OlympusDAO. Although the Maker governance has not yet approved the DSR hike, MacPherson believes that it is highly likely to happen. He hinted that a vote on June 7 might include the complete approval of these amendments.

The Overview of the Proposals

Proposal for Stability Scope and Parameter Changes: This proposal merely adheres to the textual guidelines established by the scope, which enables it to proceed straight to the executive vote. The numbers provided are currently an estimate because Base Rate depends on the Stability Collateral Yield Benchmark. However, once the upcoming Coinbase Custody deal is completed, it will affect the benchmark mentioned and therefore, all other rates in the system. Consequently, the numbers will be updated and given to the appropriate Spell crafting team.

Proposal Unrelated to Scope: The technique of the Stability Scope used for ETH and wstETH will be included, along with parameter adjustments for Scope non-defined vault types. Since the Scope does not identify any rules, this proposal needs to be put to a governance vote. Final statistics will be sent to the Spell building team.

As a result, moving forward, only one proposal will be required to provide consistency across all collateral kinds in the Native Vault Engine. This consistency will be achieved by MIP104 modification through MIP102, which will propose implementing the missing pieces from proposal 2 and some other enhancements into the Scope itself.



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