New MakerDAO proposal seeks to raise savings rate to 3.33%

Five months after raising the DAI savings rate (DSR) to 1%, the MakerDAO community is expected to soon vote on a new proposal that seeks to increase the DSR further to 3.33%.

The last rate hike saw 35 million DAI stablecoins deposited in a span of a month and if the new proposal is to sail through, it could have much broader implications for rates across the DeFi space.

Upcoming Executive MakerDAO Vote

In a tweet on May 26, the Maker team revealed that there is an upcoming executive vote that will raise the DSR if approved. According to the tweet, the new proposal “was put forth by Block Analitica and submitted via the latest Stability Scope Parameter Changes.”

In the tweet thread, Maker stated:

“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.”

What is the impact of increasing the DSR?

The Dai Savings Rate (DSR) refers to the interest rate that DAI holders earn from locking their DAI into MakerDAO’s DSR smart contracts. It is funded from the stability fees paid by Maker users pay for borrowing DAI against collateralized assets like Wrapped BTC (WBTC) and Ethereum (ETH).

Besides increasing the DSR, the new proposal is also seeking to adjust the amount of stability fees paid on certain collateral types.

The DSR is a key monetary lever since it helps in balancing the demand and supply of DAI by disincentivizing or incentivizing users to lock up DAI in DSR contracts. According to MakerDAO, “it is a global parameter that needs to be adjusted often to deal with short-term changes in market conditions of the Dai economy.”

Commenting on the new proposal, Block Analitica founder Primoz Kordez said:

“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.”

At 1% DAI holders depositing their DAI stablecoins in the DSR contracts were earning lesser than what stablecoin suppliers at Aave and Compound earn. The suppliers at Compound and Aave currently earn 2.5% and 2% respectively.

Therefore, if the MakerDAO proposal is to pass, we could see a decent amount of capital flow to DAI DSR to push supply rates.