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MakerDAO, a prominent decentralized finance (DeFi) lending protocol, is proactively enhancing incentives for token holders to stimulate demand for its $4.6 billion DAI stablecoin.

In a governance vote that concluded on Thursday, the protocol's community overwhelmingly supported the implementation of the Enhanced DAI Savings Rate (EDSR), potentially enabling DAI holders to earn a significantly higher interest rate of up to 8% on a temporary basis.

The action is prompted by the significant decrease in circulation of Maker's dollar-pegged stablecoin, which has shrunk by one-third, going from $6.9 billion to its current value, as reported by Dai Stats within a year's time. Moreover, the overall stablecoin market, which serves as a crucial infrastructure and liquidity source for trading and transactions in the crypto ecosystem, has also experienced a downtrend, dropping from almost $160 billion to its current value of $127 billion over the past year.

The Maker protocol has been progressively supporting DAI with yield-generating assets, such as government bonds, and distributing a portion of the revenue to its users. In order to make DAI more appealing in comparison to other stablecoins that do not share their revenues with holders, the protocol recently increased the DSR (Dai Savings Rate) to 3.49%. Despite these efforts, investor deposits in the DSR have amounted to only $306 million, which is less than 7% of the total DAI 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. “The EDSR helps fix this by ensuring that Dai holders that are pioneering the adoption of DSR get a more fair amount of value from the increased returns generated by the protocol.”

The EDSR will be calculated by considering the total deposits within the DSR facility and the base reward rate. As usage increases, the EDSR will gradually decrease to incentivize continued participation.

Enhanced Dai Savings Rate proposal (MakerDAO)