MakerDAO Mulls Proposal To Boost DAI Savings Rate

A key DeFi interest rate could be set to rise.

Block Analytica, a risk management firm, has proposed to increase the Dai Savings Rate (DSR) to 3.3% from 1%. The DSR enables users to earn a yield on DAI, crypto’s fourth-largest stablecoin, by depositing their tokens into the Maker protocol.

“The DAI Savings Rate is the cost of capital in DeFi,” Sam MacPherson, co-founder of the Spark Protocol, a lending project built around DAI, told The Defiant. “By increasing the DSR to 3.3%, the supply-borrow rates across all secondary markets will increase as cheap liquidity dries up.”

MakerDAO’s MKR governance token is up around 20% this year.

Other major lending protocols like Aave and Compound don’t offer rates above 2.6% on major stablecoins like USDC, USDT, and DAI, so it’s likely that an increased DSR will attract more capital.

This, in turn, stands to push up stablecoin rates throughout DeFi — this is because if traders either exchange their USDC and USDT for DAI and put the stablecoins into the DSR, or simply pull their DAI from other lending protocols to deposit in the DSR, there will be fewer stablecoins available to borrow overall in DeFi.

The DSR yield can essentially be thought of as a business expense for Maker, MacPherson said. At $6.75B, Maker is the second-largest protocol in DeFi by value locked.

To be sure, not everyone thinks the choice to deposit DAI into the DSR is an obvious one. Brice Berdah, head of growth at Liquity, which issues the LUSD stablecoin, pointed out that the protocol’s Stability Pool has traditionally offered a far higher yield on LUSD.

Maker is undergoing massive changes as part of its ‘Endgame’ plan, initiated by founder Rune Christensen. DAI is changing too — its dependence on USDC, crypto’s second-largest stablecoin with a $29B market capitalization, has fallen from 40% to 25% in the last month as real-world assets like US Treasuries constitute more of the reserves backing the token.

The DSR is yet another of these changes — the rate was increased from 0% to 1% in December and quickly attracted a $77M deposit from OlympusDAO. Maker governance is yet to approve the increase to the DSR, but MacPherson thinks it’s very likely to do so. He suggested that full approval of the changes could happen as part of a June 7 vote.