MakerDAO, a leading decentralized finance (DeFi) lending protocol,** is exploring ways to increase demand for its $4.6 billion DAI stablecoin. **In a recent governance vote,** the protocol’s community voted in favor of introducing the Enhanced DAI Savings Rate (EDSR), which could temporarily boost the interest rate that DAI holders can earn to as high as 8%.
This move comes as the circulation of Maker’s dollar-pegged stablecoin has declined by a third from its peak of $6.9 billion a year ago. The broader stablecoin market, which serves as a key infrastructure and liquidity source for trading and transactions in the crypto ecosystem, has also seen a downturn, **dropping from nearly $160 billion** a year ago to $127 billion today.
Maker increasingly backs DAI with yield-generating assets such as government bonds and shares a portion of the revenue with users. Last month, the protocol raised the DAI Savings Rate (DSR) to 3.49% to make DAI more attractive compared to rival stablecoins **that don’t share revenue with holders.**
Despite this, investors have only deposited $306 million into the DSR, less than 7% of the total supply. “We have not yet managed to generate sustainable growth in new demand and capital inflows,” said Maker founder Rune Christensen in a governance forum post. “The EDSR helps fix this by ensuring that Dai holders who 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. It will decrease over time as usage increases.
FAQs
What is a stablecoin?
A stablecoin is a cryptocurrency that is pegged to the value of a fiat currency, such as the US dollar. This means that the price of a stablecoin should remain relatively stable, even when the prices of other cryptocurrencies fluctuate.
What is MakerDAO?
MakerDAO is a decentralized autonomous organization (DAO) that develops and maintains the DAI stablecoin. The DAO is governed by its members, who vote on proposals to improve the protocol.
What is the DAI Savings Rate (DSR)?
The DSR is a feature of the MakerDAO protocol that allows DAI holders to earn interest on their deposits. The interest rate is determined by the protocol’s governance and can change over time.
What is the Enhanced DAI Savings Rate (EDSR)?
The EDSR is a proposed change to the DSR that would temporarily increase the interest rate that DAI holders can earn to as high as 8%. The EDSR is designed to boost demand for DAI and encourage more users to adopt the stablecoin.
Conclusion
The proposed EDSR is a significant step by MakerDAO to increase demand for DAI and strengthen its position in the stablecoin market. If approved, the EDSR could make DAI a more attractive option for investors and traders, potentially leading to increased adoption and liquidity for the stablecoin.
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