The Maker community is about to commence a vote on whether to increase the DAI savings rate (DSR) to 3.3% from the existing level of 1%.
Block Analitica, a DeFi risk management firm, proposed a set of parameter changes on Maker, including increasing the DSR. The change would offer holders of the stablecoin a higher yield, and potentially attract more yield farmers that could help stabilize its price.
Brace yourself, DAI holders, for a DSR at 3.33%.
An upcoming Executive Vote will deploy a new DSR raise, from 1% to 3.33%, if approved.
This change was put forth by @BlockAnalitica and submitted via the latest Stability Scope Parameter Changes.
— Maker (@MakerDAO) May 26, 2023
“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,” stated the Maker team on Twitter.
Given the role that DAI plays within the DeFi ecosystem, the implications of this parameter change could be far-reaching. According to Primoz Kordez, founder of Block Analitica, the increase in DAI DSR is equivalent to a rate hike across the board.
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%+. I personally think the supply rates should be at least 50bps above DAI DSR as risk premium is higher (rehypothecation)
— Primoz Kordez (@PrimozKordez) May 26, 2023
The fact that idle DAI deposits can now be put into the DSR will likely increase supplier yield and reduce the borrow/lend spread on lending protocols. As more capital flows into the DSR, there will be fewer stablecoins available to borrow overall – something that would stand to increase stablecoin rates.
“Gonna be seeing a lot more of this from different angles in the coming weeks – these base rates (and the degree to which they are risk free) are arguably the single most important driver of defi interest,” wrote Twitter user “@jack-anorak.”
Until a November proposal was executed successfully, the DAI DSR stood at just 0.01%. The rate change was proposed as a way for Maker to increase overall protocol revenue, despite increasing its cost of capital.