- MakerDAO boosts Dai Savings Rate (DSR) from 3.19% to 8%, seeing a surge in Dai token market cap.
- MakerDAO co-founder, Christen Rune, proposes to modify the EDSR plan to tackle unexpected ETH whale benefits.
Rethinking the Enhanced Dai Savings Rate
Following a substantial bump in the Dai Savings Rate (DSR) from 3.19% to a temporary 8% on August 6, MakerDAO has grabbed financial headlines. This shift, tagged the Enhanced Dai Savings Rate (EDSR), was initiated to magnetize more Dai (Maker’s stablecoin) enthusiasts to deposit their tokens into the Maker protocol, thus accruing interest.
Post this EDSR introduction, the Dai token’s popularity shot up, with its market cap increasing by a staggering $570 million since that Sunday, as evidenced by CoinMarketCap data. Further, the Makerburn dashboard indicates that the amount of Dai in the DSR initiative has almost doubled, escalating from 396.8 million on August 6 to a whopping 906.7 million presently.
Optimizing EDSR: Curtailing ETH Whale Hegemony
Yet, in the shadows of EDSR’s triumphant debut, an underlying issue has been brewing. Christen Rune, MakerDAO’s co-founder, spotlighted a need for EDSR optimization. On August 8, he tabled a governance proposal pointing towards a prevalent dominance by ETH whales, overshadowing regular Dai holders in reaping the program’s benefits.
Rune’s analysis revealed a trending “borrow arbitrage” strategy. Here, traders capitalize by borrowing Dai at a meager 3.19% and then depositing these borrowed amounts into the EDSR initiative, enjoying an 8% profit. This loophole wasn’t the objective behind introducing EDSR. Rune highlighted that this borrowing strategy is predominantly leveraged by ETH and staked ETH whales. Consequently, they are drawing higher yields, sidelining regular Dai holders, the EDSR program’s primary beneficiaries.
To rectify this, Rune suggests a reduction in the ceiling EDSR interest rate, bringing it down from 8% to 5%. Additionally, a rise in the Dai borrowing rate is proposed to mirror the EDSR rate, setting it at a minimum threshold of 5%. This tweak aims to put the brakes on the rampant “borrow arbitrage.”
Rune’s proposal further elaborates on refining the EDSR framework. He advocates for extending Tier 1 EDSR to cover a 0-40% utilization span and introducing a Tier 2 EDSR for 40-55% utilization, ensuring EDSR’s longevity. For clarity, “utilization” delineates the segment of the total EDSR system capacity currently engaged. Presently, Makerburn data reveals an 18% EDSR utilization rate.
MKR Token’s Price Takes a Hit
Parallelly, MKR, the inherent token of the MakerDAO lending framework, hasn’t mirrored Dai’s success. Despite the dramatic Dai market share elevation, MKR’s market price has descended. As per CoinMarketCap, the token’s value has dipped 0.84% in the past 24 hours, contributing to a week-long 8.26% market value erosion. At the moment, MKR is being traded at $1,214.28, marking a 0.39% decline in the past hour. The token stands as the 42nd largest cryptocurrency, boasting a $1.18 billion market cap.
