DSR Increases and it's impact on MakerDAO
A few related changes have been implemented recently that have significant impact on the dynamics of DAI and it’s collateral.
Changes
The Dai Savings Rate(DSR) has been increased from 1% to 3.5%.
MakerDAO has invested 1.2 billion of stablecoin collateral into US Treasuries through Monatelis, with plans to invest considerably more through both Blocktower and Monetalis.
Borrowing rates for DeFi collateral has been raised considerably to compensate for the increased DSR.
Impacts
This has a few impacts on the value proposition of DAI and the make-up of DAI collateral.
DAI is now considerably more valuable as a yield generating asset. We are only a few days into the DSR change, but we are seeing considerable inflows. From 100 million to 160 million. Early data shows an increase in the DAI supply as well, reversing the downward trend that has dominated the last few months.
Potential expenses and revenue will go up. The rate increases both the cost per DAI of the DSR and the amount of DAI that will be staked into it. Expenses were minimal(1 million a year), but could reasonably grow into the tens of millions. At the same time, the DSR provides considerable demand to hold DAI which could boost the supply and thus revenue of the protocol.
DAI as a leverage tool is now less valuable due to increased borrowing rates. As tradfi and defi converges, rates converge too. This is expected to result in a shift from DeFi collateral to stablecoin collateral.
Liquid staking derivatives of DAI, such as CHAI and SDAI, are becoming a lot more valuable. I expect various protocols to start integrating these tokens as efficient sources of collateral.