MakerDAO is thinking about a plan to increase the interest rate for holding Dai, known as the Dai savings rate (DSR). In the previous adjustment, the DSR was raised to 1%, which resulted in more than 35 million DAI being deposited within a month. Now, there is a new proposal under consideration to further increase the DAI savings rate from its current level to 3.33%. If approved, this change would offer Dai holders a higher interest rate for keeping their funds in the system.
MakerDAO, a decentralized finance (DeFi) protocol that creates the DAI stablecoin, is suggesting raising the interest rate for holding DAI, known as the Dai savings rate (DSR), to 3.33%.
This proposal comes after a previous vote to increase the DSR from 0.6% to 1%, which resulted in over $35 million worth of DAI being deposited in just one month. The recent proposal was made by Block Analitica, a DeFi platform, and now needs to go through an Executive Vote by MKR holders for final approval.
MKR is a token that helps govern the Maker lending protocol.
The protocol has a feature called the Dai Savings Rate (DSR), which allows users to deposit their DAI and earn a steady interest rate. This interest is calculated and added to their deposits in real-time, based on the revenues generated by the system. In simpler terms, it’s a way for people to earn interest on their DAI by keeping it in the Maker Protocol.
Impact on the Wider DeFi Community
The DSR is an important part of MakerDAO’s plan for managing money. It not only lets users earn interest on their DAI deposits but also encourages the community to create more DAI. This proposal to raise the DSR comes at a time when interest rates are increasing in traditional banking systems.
Comparison to US Federal Reserve and Treasury Bonds
To give you an idea, the US Federal Reserve, which is like the country’s central bank, has been increasing interest rates to tackle inflation concerns. Similarly, the adjustment in the Dai rate is happening alongside a significant rise in yields on US Treasury bonds. For example, the yield on 3-month Treasury bonds is currently around 5.29%. These changes in interest rates in both traditional and decentralized finance are happening simultaneously.
Impact on the Broader DeFi Market
Experts and observers in the industry believe that MakerDAO’s decision could have significant effects on the wider DeFi market. Primoz Kordez, the founder of Block Analitica, mentioned that raising the Dai DSR to the proposed 3.33% will have a ripple effect throughout the sector. This is because the DSR serves as a benchmark for the safest way to earn interest on stablecoins within the DeFi space. In simpler terms, the changes in Dai’s interest rate could influence how other DeFi platforms structure their own stablecoin yields.
Expectation of Higher Rates in the DeFi Industry
Compared to other platforms like Compound and Aave, the interest rate for Dai has been relatively low. Currently, these platforms offer rates as high as 2.5% for stablecoins such as USDT, USDC, and DAI. An expert suggests that the industry should prepare for higher interest rates across various lending protocols, stablecoins, bridges, and DeFi treasuries. In simpler terms, we might see an increase in the rates offered by different DeFi platforms for borrowing and lending, as well as other financial services within the industry.
Important: This article is intended solely for informational purposes. It should not be considered or relied upon as legal, tax, investment, financial, or any other form of advice.