MakerDAO has been in the headlines recently following a boost in the maximum Dai Savings Rate (DSR) from 3.19% to 8% on Sunday, August 6. This temporary increment termed the Enhanced Dai Savings Rate (EDSR), was designed to encourage more Dai (Maker’s stablecoin) holders to deposit their tokens on the Maker protocol and earn interest.
Following the implementation of EDSR, the Dai token has experienced some traction, with its market cap rising by over $570 million since Sunday, according to data from CoinMarketCap.
In addition, data from the Makerburn dashboard shows the number of DAI in the DSR program has surged, moving 396.8 million on August 6 to its current value of 906.7 million.
However, amidst the massive success of the EDSR, MakerDAO co-founder Christen Rune has proposed to adjust this incentive plan “based on observed data.”
MakerDAO Co-Founder Proposes EDSR Optimization Plan To Curb ETH Whale Dominance
On August 8, Rune submitted a governance proposal on the MakerDAO forum to optimize the Enhanced Dai Savings Rate citing an ongoing ETH whale dominance over regular Dai holders in terms of the program’s benefits.
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According to Rune, offering yields on Dai that are higher than the cost of borrowing Dai has led to certain borrowing activity known as “borrow arbitrage,” whereby traders borrow Dai at 3.19% and deposit in the EDSR program for 8% profit.
Rune noted that this was not the intended purpose of the EDSR plan. He stated that this investment strategy was mainly practiced by ETH and staked ETH whales, who now receive a higher yield at the expense of regular Dai holders, the primary target of the EDSR program.
To counter this unforeseen circumstance, Christen Rune proposed to reduce the maximum EDSR interest rate from 8% to 5%. Furthermore, the MakerDAO cofounder proposes an increment in the DAI borrowing rate to be equivalent to the EDSR rate at a minimum of 5%, thus halting the ongoing large-scale “borrow arbitrage” activities.
The proposal also states that MakerDAO should extend Tier 1 EDSR to cover a utilization range of 0-40% and introduce a Tier 2 EDSR for utilization between 40-55% with the aim of making the EDSR plan sustainable.
For context, utilization refers to the portion of the total capacity of the EDSR system that is in use. Currently, data from Makerburn states that the EDSR…
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