MakerDAO Implements DAI Yield Increase Strategy to Stimulate Demand

The MakerDAO community has given the green light to a proposal that aims to bolster demand for the stablecoin Dai by temporarily increasing the interest rate for its holders. The proposal, which was approved on July 27, introduces the Enhanced Dai Savings Rate (EDSR), a mechanism that raises the effective Dai Savings Rate (DSR) available to users, offering yields as high as 8%.

Rune Christensen, the co-founder of MakerDAO, explained that the EDSR was designed to address the issue of Dai holders not receiving a fair share of the increased returns generated by the protocol. By implementing this mechanism, the hope is to incentivize more adoption of Dai, thus enhancing its attractiveness within the market.

The proposal is formulated in a way that allows the EDSR to be adjusted based on the utilization of the DSR. As DSR utilization increases, the enhanced interest rate will gradually be reduced. The DSR’s present strategy allocates 75% to real-world assets and keeps 15% in custody with Coinbase, creating a relatively high spread even after raising the DSR to 3.49% in June.

Despite the previous effort to raise the DSR, the actual utilization remained disappointingly low, with less than 7% of the total DAI supply deposited in the DSR. This resulted in an excessive margin and surplus earnings, which surpassed what was initially projected, as noted in the proposal. The MakerDAO community hopes that the new EDSR will provide a more enticing yield, driving greater adoption and utilization of DAI.

This move comes at a time when the stablecoin market has experienced a global slump in market capitalization. According to CoinMarketCap, DAI currently holds the third position among stablecoins, with a market cap of $4.5 billion at the time of writing. This is a notable decrease from its previous market cap of $8.6 billion recorded in 2022. In comparison, USDT and USDC, occupying the first and second positions, boast market caps of $83.7 billion and $26.5 billion, respectively.

To maintain competitiveness amid market turbulence, MakerDAO has previously taken strategic measures. In March, the protocol significantly increased its holdings of U.S. Treasury bonds by 150%, reaching $1.25 billion, in an effort to fortify the strength of its portfolio and ensure the stability of DAI.

With the approval of the Enhanced Dai Savings Rate, MakerDAO aims to enhance the appeal of DAI in the stablecoin market and encourage increased adoption, contributing to the stablecoin’s long-term growth and resilience.

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