MakerDAO, a prominent player in the DeFi space, has successfully passed a proposal to temporarily boost the DAI savings rate to 8%. This decision was overwhelmingly supported by the community, with 99.93% of the votes in favor.
The new scheme, known as the Enhanced Dai Savings Rate (EDSR), was voted on in a governance meeting that concluded last week. The EDSR is designed to temporarily elevate the interest rate for DAI holders to 8% during the initial stages of adoption when the DAI Savings Rate (DSR) utilization is low.
The EDSR is a dynamic system that adjusts based on the DSR and its utilization rate. As the utilization rate increases, the EDSR gradually diminishes until it eventually phases out when the utilization rate is sufficiently high. This mechanism is a one-off, unidirectional temporary system, meaning that once the EDSR decreases, it cannot increase again, even if the DSR utilization drops.
The introduction of the EDSR aims to ensure that early DSR adopters receive a fair share of the additional profits generated by the protocol. This could potentially encourage adoption and prompt other DeFi protocols to integrate the DSR while the EDSR is still active.
The utilization rate is defined as the ratio of DAI locked in the DSR to the total DAI supply in the market. It is anticipated that the 8% interest rate will be sustained until 20% of the total DAI supply is locked in the DSR.
Rune, the founder of MakerDAO, also mentioned that this proposal could be a litmus test. If it doesn't work as expected, the Stability Advisory Council has the power to initiate a vote to urgently halt the program.
MakerDAO has been diversifying its income-generating assets, including government bonds, to back DAI and share a portion of the profits with its users. Last month, the protocol increased the DSR to 3.49% to enhance DAI's attractiveness but quickly reduced it to 3.14%.
