MakerDAO, one of the largest decentralized finance (DeFi) lending protocols, is taking steps to increase demand for its $4.6 billion DAI stablecoin by boosting yields for token holders. In a governance vote concluded on Thursday, the protocol’s community favored introducing the so-called Enhanced DAI Savings Rate (EDSR), which may temporarily increase the interest rate DAI holders can earn to as high as 8%.
The circulation of Maker’s dollar-pegged stablecoin has shrunk by a third from $6.9 billion in a year, according to Dai Stats. The broader stablecoin market, a key infrastructure and source of liquidity in the crypto ecosystem for trading and transactions, is in a downtrend, sinking to $127 billion from nearly $160 billion a year ago.
In order to make DAI more attractive compared to rival stablecoins, Maker has hiked the DSR to 3.49% last month and pays a part of the revenue to the users. However, investors have only deposited $306 million in the DSR, less than 7% of the total supply.
We have not yet managed to generate sustainable growth in new demand and capital inflows, Maker founder Rune Christensen said in a governance forum post. The EDSR helps fix this by ensuring that Dai holders that 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, and will decrease over time as usage increases.