MakerDAO has attracted nearly $700 million with an 8% DAI savings rate

Dune data shows that MakerDAO has attracted nearly $700 million in deposits after increasing its Dai Savings Rate (DSR) from 3.3% to 8%, a move aimed at boosting adoption of the Dai stablecoin, Spark Protocol, and the DSR.

Since the rate hike , DAI deposited with the DSR has tripled to over $1 billion.

DAI now offers the highest yield among stablecoins, outperforming various money market yields and DEX LP returns. Many crypto celebrities have also participated in it. On-chain data shows that the wallet of Tron founder Justin Sun exchanged more than 90,000 stETH into 77.8 million DAI and deposited it in Maker. Calculated at an annual yield of 8%, he can easily earn more than $10,000 a day.

Maker last increased its savings rate in May, from 1% to 3.3%. This move is intended to consolidate DAI’s stablecoin market share as new stablecoins from Curve and Aave enter the market.

Both Curve ’s crvUSD and Aave ’s GHO allow users to mint stablecoins based on yield-generating protocol deposits, meaning users can continue to earn passive returns while accessing stablecoin liquidity against their assets.

Thus, raising the DSR enables DAI to compete for market share with its upstart competitor, Spark Protocol, a fork of the Aave v3 lending protocol that launched in May with the support of MakerDAO. A DAI-centric money market also creates new use cases and yield opportunities for DAI holders , allowing depositors to access the DSR and obtain loans with DAI collateral.

Aave DAI Market Volatility

Dai interest rates on top money market protocol Aave v3 have fluctuated wildly in recent months.

From February to mid-June, DAI borrowing fees stabilized between 2% and 4%, with spikes as high as 10%. On July 13, the rate soared to 31%, and hit 26% twice before the end of the month.

In the first week of August, rates were still volatile and appeared to be rising again.

The rise of Spark could increase volatility in Aave’s DAI market by providing an alternative source of yield for stablecoin holders.

Is the strategy sustainable?

This strategy comes with significant financial implications, according to a report published by Delphi Digital . With the DSR currently set at 8%, Maker’s annual costs are estimated at $54 million. This would therefore reduce Maker’s estimated annual profit from $84 million/year to $41 million/year. Nonetheless, it can be considered a customer acquisition cost to reignite demand for DAI.

Analysts said that in simple terms, the EDSR is based on a multiplier of the DSR base rate of 3.19%. As the utilization of the DSR increases, this ratio will shrink, with an upper limit of 8%:

0-20% = 3x DSR = 8%
20-35% = 1.75x DSR = 5.58%
35-50% = 1.3x DSR = 4.15%

As more DAI is minted, the interest Maker generates on newly minted DAI will exceed the interest it pays on the DSR. However, as DSR deposits increase, this dynamic will weigh on Maker’s margins, leading to declining profitability unless the 4.15% EDSR level is reached.

Delphi Digital believes that the enhanced DAI DSR offers an attractive on-chain alternative to U.S. Treasuries. Given its higher yield, DSR utilization has the potential to stabilize below 35%, in line with the current Treasuries rate benchmark of 5.5%. This strategic move is intended to advance Maker and lay the foundation for the introduction of the Maker SubDAO, which is designed to increase demand and utility for DAI and MKR tokens.