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MakerDAO increases DAI yield in a bid to boost demand

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A proposal seeking to temporarily increase the interest rate granted to holders of stablecoin Dai (DAI) was approved by the MakerDAO community on July 27, raising yields for tokenholders to as high as 8%. 

The proposal introduced the Enhanced Dai Savings Rate (EDSR), a mechanism that temporarily increases the effective Dai Savings Rate (DSR) available to users. The enhanced mechanism will be determined by the DSR utilization and will be reduced over time as the DSR utilization goes up.

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“The EDSR helps fix this by ensuring that Dai holders (…) get a more fair amount of value from the increased returns generated by the protocol. In turn this might help spur adoption,” reads the proposal from MakerDAO co-founder Rune Christensen. He noted that even offering increased yield, the DSR is still generating a high spread with its portfolio strategy of 75% allocated to real-world assets and 15% in custody with Coinbase.

Enhanced Dai Savings Rate (EDSR) mechanism. Source: MakerDAO

MakerDAO raised its DSR to 3.49% in June, hoping to make DAI more competitive. The effort, however, resulted in less than 7% of the total DAI supply deposited in the DSR. “In practice though, DSR utilization is near 0, which gives us excessive margins and a huge windfall of surplus on top of what we would naturally be earning with the protocol at this size,” reads the proposal. “The income we are currently earning is much greater in reality than what is even shown on e.g. makerburn.”

The new yield seeks to boost DAI adoption amid a global slump in stablecoin market capitalization. According to CoinMarketCap, DAI is currently in the third position among stablecoins with a $4.5 billion market cap at the time of writing, down from $8.6 billion in 2022. The DAI stablecoin sits behind Tether (USDT) and USD Coin (USDC), with $83.7 billion and $26.5 billion market caps, respectively.

MakerDAO has introduced several measures to keep its competitiveness amid market turbulence. In March, the protocol increased its holdings of U.S. Treasury bonds by 150% to $1.25 billion in an effort to improve the strength of its portfolio. 

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