Maker Founder Proposes Changing DAI Savings Rate to 5%

The proposed changes would be to ensure the Enhanced DAI Savings Rate benefits regular DAI users as opposed to ETH whales.

Stablecoin deposits on the Maker Protocol have soared in the two days since the community approved a proposal to temporarily raise the DAI savings rate to as high as 8%. Maker founder Rune Christensen has now called for stabilizing the Enhanced DAI Savings Rate (EDSR) by decreasing it to a maximum value of 5%.

It’s been a little more than 2 days since the EDSR activated, and DSR utilization has already almost hit 20%, triggering an automatic EDSR decrease to about 5.8%.

I have made a draft proposal to stabilize the EDSR and optimize it for use by Dai holders rather than ETH whales -…

— Rune (@RuneKek) August 8, 2023

The EDSR was implemented as a measure to temporarily increase the interest rate paid out to DAI users when utilization is low. However, in a little over 48 hours since the new rate went live, utilization surged to 20%, causing the EDSR to automatically decrease to around 5.8%.

Much of this activity was driven by Ethereum whales, who were able to borrow DAI at 3.19% and earn the 8% EDSR on their deposits. Christensen believes that harvesting yield in this way “crowds out” regular DAI users who were the intended benefactors of the initial proposal.

In a proposal posted to Maker’s governance forum, Christensen proposed a few measures to deal with the so-called “unintended consequences of the EDSR disproportionately being used by large-scale whales.”

As per the terms of the proposal, the EDSR would be changed to a maximum value of 5%. Additionally, a Tier 1 EDSR would cover utilization from 0-40%, and a Tier 2 EDSR would cover utilization from 40-55%, making the maximum EDSR last longer than before. 

“Crypto borrow rates would also increase to be equivalent to the EDSR, so initially they would go to minimum 5%, and this would make it impossible to profit from performing the borrow arbitrage that is currently happening at very large scale,” said Christensen, noting that ETH-A, ETH-B and ETH-C would be exceptions to this.

So far, the response to the proposal has been mixed, with some users opining that if the EDSR never reaches a 40% utilization, it could lead to the unintended consequence of reducing DAI supply rather than driving demand.