The community of Ethereum-based decentralized finance (DeFi) protocol MakerDAO will soon vote on a proposal to increase its Dai (DAI) stablecoin’s savings rate (DSR) to 3.33%. If it goes through, the move is tipped to have broader implications for rates across the DeFi market.
In a May 26 tweet, the Maker team revealed that an “upcoming Executive Vote will deploy a new DSR raise, from 1% to 3.33%, if approved.”
“The Dai Savings Rate (DSR) is a fundamental component within the Maker Protocol system, offering users the opportunity to deposit DAI and receive a consistent interest rate. This interest is accrued in real-time, accumulating from the system's revenues,” Maker stated.
The proposal was put forward by DeFi-focused risk management firm Block Analitica and submitted by a member of MakerDAO’s risk core unit team.
The DSR refers to the interest rate that users accrue from locking their DAI into MakerDAO’s DSR smart contracts.
The DSR is funded from the stability fees that users pay for borrowing DAI against collateralized assets, such as Ether (ETH) and Wrapped Bitcoin (WBTC), with this latest proposal also aiming to adjust several stability fees on certain collateral types.
As per a MakerDAO blog post from August 2018, the DSR is a key monetary lever that helps “balance supply and demand of DAI” by incentivizing or disincentivizing users to lock up DAI in DSR contracts.
“It is a global parameter that needs to be adjusted often to deal with short-term changes in market conditions of the Dai economy,” MakerDAO states.
Adding more context to the proposal, Block Analitica founder Primoz Kordez told the community to “prepare for [a] rate hike in DeFi.”
“New proposal at MakerDAO will increase DAI DSR to 3.33% which will set rates higher across the DeFi landscape. Keep in mind DAI in DSR is the benchmark for [the] safest DeFi stablecoin yield.”
“Stablecoin suppliers at Aave and Compound earn around 2%-2.5% and a decent amount of capital should flow to DAI DSR to push supply rates to a range of 3.5%+,” he added.
Before this latest DSR proposal, the rate was increased to 1% in December 2022 after the community voted in favor of the hike. In February, MakerDAO claimed the move led to 35 million DAI being deposited into DSR contracts in a month.