One of the biggest decentralised finance (DeFi) lending networks, MakerDAO, is increasing returns for token holders in an effort to increase demand for its $4.6 billion DAI stablecoin.
The community of the network supported the introduction of the so-called Enhanced DAI Savings Rate (EDSR) in a governance vote that was completed on Thursday. This rate might temporarily raise the interest rate that DAI holders can earn to as high as 8%.
The move comes as Dai Stats reports that Maker’s dollar-pegged stablecoin’s circulation has decreased by a third from $6.9 billion in a year. The overall stablecoin market is on a downward trend, falling to $127 billion from roughly $160 billion a year ago. This market is a crucial infrastructure and source of liquidity for trading and transactions in the crypto ecosystem.
Maker increasingly uses yield-generating assets, including government bonds, to support DAI and distributes a portion of the profits to the users. In order to make DAI more appealing compared to competing stablecoins that do not distribute earnings to holders, the network increased the DSR to 3.49% last month. Nevertheless, investors deposited only $306 million in the DSR, less than 7% of the total supply.
“We have not yet managed to generate sustainable growth in new demand and capital inflows,” Maker founder Rune Christensen said in a governance forum post. By guaranteeing that the Dai holders who are leading the adoption of DSR receive a more equitable share of the higher returns created by the network protocol, the EDSR helps to rectify this. The EDSR rate will be established using the base reward rate and the total amount of deposits in the DSR facility, and it will gradually drop as usage rises.