A core developer team at MakerDAO, the decentralized platform responsible for the Dai stablecoin, is proposing to raise the savings rate for the collateral-backed cryptocurrency to 3.33% amid a surging interest rate environment as the U.S. Federal Reserve seeks to combat persistent inflation.
"Brace yourself, DAI holders, for a DSR at 3.33%," MakerDAO said on Twitter, adding that the change had been put forth by DeFi risk management firm Block Analitica.
Know as DSR, the DAI Savings Rate can be "adjusted often to deal with short-term changes in market conditions of the Dai economy," according to MakerDAO.
It's funded by the Stability Fee on the network and paid when DAI is locked into a DSR contract.
Raising the DSR to 1% last year led to more than 35 million DAI being deposited in a month, MakerDAO said in February. The proposal, which noted that the yield on a 3-month U.S. Treasury Bill is currently around 5.29%, would need to go through a formal vote process by the decentralized autonomous organization.
The average yield of other cash stablecoins mentioned in the proposal is currently 0.97%.
MakerDAO member sees 'huge tailwind' for Defi ecosystem
"Think this could be a huge tailwind for the entire defi ecosystem," a MakerDAO community member with Block Analitica named Monet Supply said Friday on Twitter, telling one user that the move should drive DAI circulation up and not down. "Logic is market will grow more efficient eventually, better to be a first mover."
"DSR increases demand for holding DAI which will increase the market cap as people switch in from non-yield bearing stables," Sam MacPherson, the co-founder of Phoenix Labs, wrote on Twitter. "Borrow rates at your favorite lending platforms are about to jump to ~4.5% as Maker drastically raises the cost of capital."
Primoz Kordez, the founder of Block Analitica, said the proposal would increase rates across the entire DeFi landscape.
"DAI in DSR is the benchmark for safest DeFi stablecoin yield," he wrote.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.