MakerDAO Looks to Ignite Growth for $4.6B DAI Stablecoin With Up to 8% Reward

The circulation of Maker’s DAI stablecoin has shrunk by a third over the past year.

AccessTimeIconJul 27, 2023 at 4:28 p.m. UTC
Updated Jul 27, 2023 at 4:58 p.m. UTC

MakerDAO, one of the largest decentralized finance (DeFi) lending protocols, is taking steps to spur demand for its $4.6 billion DAI stablecoin by boosting yields for token holders.

In a governance vote concluded on Thursday, the protocol’s community favored introducing the so-called Enhanced DAI Savings Rate (EDSR), which may temporarily increase the interest rate DAI holders can earn to as high as 8%.

The action comes as the circulation of Maker’s dollar-pegged stablecoin has shrunk by a third from $6.9 billion in a year, according to Dai Stats. The broader stablecoin market, a key infrastructure and source of liquidity in the crypto ecosystem for trading and transactions, is in a downtrend, sinking to $127 billion from nearly $160 billion a year ago.

Maker increasingly backs DAI with yield-generating assets such as government bonds, and pays a part of the revenue to the users. The protocol hiked the DSR to 3.49% last month to make DAI more attractive compared to rival stablecoins that don’t pass on the revenues to holders. Still, investors deposited only $306 million in the DSR, less than 7% of the total supply.

“We have not yet managed to generate sustainable growth in new demand and capital inflows,” Maker founder Rune Christensen said in a governance forum post. “The EDSR helps fix this by ensuring that Dai holders that are pioneering the adoption of DSR get a more fair amount of value from the increased returns generated by the protocol.”

The EDSR rate will be determined based on the amount of deposits in the DSR facility and the base reward rate, and will decrease over time as usage increases.

Enhanced Dai Savings Rate proposal (MakerDAO)
Enhanced Dai Savings Rate proposal (MakerDAO)

Edited by Stephen Alpher.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.