DAI Supply Soars: Over 24% Increase in Two Months
The supply of DAI, a leading stablecoin, has experienced significant growth in recent months, surging by over 24%. From early March to May 12, 2024, the supply rose from 4.42 billion to 5.48 billion.
This surge in supply can be attributed to the popularity of the Dai Savings Rate (DSR). Users are now able to earn interest on their DAI deposits, which has driven up demand for DAI. As users burn DAI to deposit into the DSR, SavingsDAI (sDAI) is created, effectively reducing the circulating supply of DAI while increasing the supply of sDAI.
MakerDAO, the protocol behind DAI, has raised the DSR multiple times to attract more users. Initially set at 1%, the rate was increased to 3.3% and then to 8% to remain competitive. The 8% interest rate increase in August 2023 significantly boosted DAI’s supply, demonstrating the effectiveness of higher interest rates in attracting deposits.
However, the 8% rate was not sustainable, resulting in a drop to 5.8% as a large portion of DAI was deposited into the DSR. To maintain a higher rate for a longer period, MakerDAO reduced the rate to 5%. Despite the attractive DSR, some outflow from DAI occurred due to alternative yield opportunities, such as USDe, offering a 15.9% yield on its staked offering.
In response to the decline, MakerDAO adjusted its fee mechanism and raised the DSR to 15% on March 9, 2024. This change appears to have stimulated the recent surge in DAI’s supply as users rushed to take advantage of the high yield.
Please note that the information presented in this article is for informational and educational purposes only and does not constitute financial advice. Readers are advised to exercise caution and make their own informed decisions.