MakerDAO Community Disagreement: DAI Supply Surges by 25%, Can High Yields Be Sustained?
In August this year, MakerDAO raised the yield of Dai to 8% to create sustainable growth and capital inflow. Subsequently, the yield was lowered to 5%. Members of the MakerDAO community have differing opinions on this.Original Title: 《High yields split MakerDAO community as Dai supply surges 25%》
Written by: Tim Craig, DLNews
Translated by: bayemon.eth, ChainCatcher
In August this year, MakerDAO raised the yield on Dai to 8% to create sustainable growth and capital inflow. Subsequently, the yield was lowered to 5%. Some DAO members believe this strategy is unsustainable and merely attracts giant whales to drain the community's treasury. Others support the plan of co-founder Rune Christensen. Projects like Term Finance and Gnosis have also been affected by the interest rate hike.
After the publisher MakerDAO raised the stablecoin yield at the beginning of the month, DeFi users flocked in. Since the community raised the yield to 8% on August 6, the market capitalization of Dai (the circulating supply of the stablecoin pegged to the US dollar) has surged over 25%, reaching $5.2 billion. Although some members of MakerDAO agreed with the yield increase, others rejected it.
MakerDAO community member and GFX Labs governance liaison PaperImperium told DL News: "The increase in yield will only attract whales, allowing them to 'bleed' the community treasury through borrowing at rates lower than the Dai savings rate."
The rise in yield has also created ripples in other DeFi protocols, allowing them to benefit as well. MakerDAO co-founder Rune Christensen proposed raising the yield for DAI holders from around 3% to 8% as part of his termination plan. Christensen hopes to increase the yield on Dai to create "new demand and capital inflow for sustainable growth" for Dai and Maker.
Shortly after the vote passed, driven by DeFi users' thirst for higher yields, Dai's market capitalization surged to $5.4 billion. Despite the overall decline in the stablecoin market—from a peak of $124 billion in early 2022 to around $74 billion now—Dai's market capitalization continues to soar.
Doo Wan Nam, co-founder of DAO research and consulting firm StableLab and former MakerDAO representative, told DL News: "With the Dai savings rate raised to 8%, deposits increased by 300%. This must have had a huge impact." Nam was referring to the deposits in the Spark protocol, a lending protocol operated by Phoenix Labs, a blockchain R&D company initiated by MakerDAO.
The Spark protocol allows users to deposit Dai to receive sDai (similar to liquid staking tokens like Lido's stETH). Tom Wan, a cryptocurrency research analyst at 21.co, believes that users' expectations for airdrops from Spark have also increased the demand for Dai. He stated that many users are arbitraging the difference between the 4% borrowing rate and the 8% savings rate.
However, the 8% Dai yield was short-lived. In less than a week, the circulating supply of Dai increased by over a billion, and on August 8, Christensen proposed lowering the savings rate to 5%. Christensen believes that the 8% savings rate "quickly succeeded" in increasing Dai's usage, but he mentioned that lowering the savings rate is necessary to prevent large accounts from exploiting the yield and for the long-term health of the Maker protocol. The proposal was subsequently passed and executed on August 20. Due to the drop in yield and capital withdrawal, Dai's market capitalization shrank by about $200 million overnight. Since then, Dai's market capitalization has stabilized around $5.2 billion.
Diverging Opinions
The MakerDAO community has mixed opinions on this event. On one hand, rewarding Dai holders helps MakerDAO prevent the decline of Dai's market capitalization and reverse the trend. On the other hand, opponents argue that the increase in Dai's adoption is likely temporary and unsustainable.
PaperImperium stated that unless the number of Dai holders benefiting from Spark remains low, directly distributing funds from MakerDAO's treasury at a 5% yield is an unsustainable practice.
Additionally, PaperImperium noted that while U.S. Treasury bonds can maintain a 5% yield, achieving such income levels on Ethereum may still be too difficult. PaperImperium pointed out that most of Maker's income is off-chain. For various reasons, very little income actually returns.
Moreover, other viewpoints highlight the drawbacks of Dai promoting economic growth through high savings rates. Wan also believes that relying solely on high-yield strategies may not be the best choice. In the stablecoin space, top stablecoins like Tether's USDT and Circle's USDC have gained significant market share without offering high savings rates to holders. USDT is currently the largest stablecoin in cryptocurrency, with a market capitalization exceeding $82 billion.
Ultimately, the growth of stablecoins depends on utility and adoption rates. Without specific use cases, stablecoins will have many profit-driven holders who will abandon Dai for better yield opportunities.
In contrast, other stakeholders in MakerDAO are more optimistic.
Nam stated that he believes if half of the Dai in circulation eventually flows into the Spark protocol, then raising the DAI savings rate will be successful. However, if the total supply of Dai does not change, then a 5% savings rate would be unstable. But considering that Dai's market capitalization has indeed increased, the rise in savings rate has, to some extent, made Dai more resilient.
Broad Market Yield Prospects
It seems that the benefits from the Dai market capitalization boom extend beyond just MakerDAO and its related projects.
Term Finance is a DeFi protocol that offers fixed-term interest rate loans, and its first sDai auction received demand worth nearly $1 million. "Billy Welch, co-founder of Term Labs, the developer of Term Finance, described sDai as a yield-generating borrowing collateral, and currently, protocols that can provide such borrowing are quite scarce, making sDai a very high-quality asset."
In other areas of the market, the demand for DAI's high yield is flowing to other chains outside of Ethereum.
Martin Köppelmann, co-founder and CEO of the Gnosis blockchain, believes that Dai's high savings rate is successful because it has sparked a wave of interest from many people and projects integrating sDai. Gnosis is also part of this trend; by being compatible with sDai, the Dai bridging between Gnosis and Ethereum can earn high savings returns. Köppelmann stated that Gnosis had long planned to incorporate bridging services, but when interest rates rose to 8%, implementing the bridging plan became urgent.
