TL;DR
- The supply of DAI has increased by 24% over the last two months, rising from 4.42 billion to 5.48 billion.
- The growing popularity of the Dai Savings Rate (DSR) is the main reason behind this growth, as it allows users to earn interest on their deposits.
- MakerDAO has adjusted the DSR multiple times to attract more users, but competition from other yield opportunities has led to changes in fee strategies.
The supply of DAI, one of the leading stablecoins in the crypto market, has experienced exponential growth in the last two months. From early March to May 12, 2024, the supply of the stablecoin has increased by 24%, from 4.42 billion to 5.48 billion. Discussions have begun regarding the possible reasons behind this increase.
The primary cause is attributed to the growing popularity of the Dai Savings Rate (DSR). The DSR allows users to earn interest on their DAI deposits, incentivizing more people to hold their funds in this stablecoin. As more users deposit into the DSR, stablecoins are burned to create SavingsDAI (sDAI), reducing the circulating supply while increasing the sDAI supply.
• Deposit DAI into the DSR by calling SavingsDAI's mint method.
• Withdraw DAI from the DSR by calling SavingsDAI's burn method.
— Maker (@MakerDAO) February 2, 2023
Behind the stablecoin is the MakerDAO protocol, which has played a key role in the supply increase. MakerDAO has adjusted the DSR several times to attract more users. Initially set at 1%, the rate was increased to 3.3% and then to 8% to remain competitive. However, the latest increase proved unsustainable in the long run. Leading to a reduction to 5.8% and subsequently 5% to maintain a higher rate for an extended period.
DAI Faces Tough Competition in the Stablecoin Market
Despite the attractive nature of the DSR, some users have opted to seek alternative yield opportunities. For instance, the stablecoin USDe offers a 15.9% yield on its staking offering. Leading to some funds moving away from DAI to this alternative.
In response to this situation, MakerDAO adjusted its fee mechanism and increased the DSR to 15% on March 9, 2024. This measure appears to have successfully stimulated the recent increase in DAI supply. As users sought to capitalize on the high yield offered.
MakerDAO struggles to remain competitive in the decentralized finance market. This growth demonstrates the continued interest in stablecoins and their fundamental role in the crypto market.
