U.S. Fed's Vice Chair Barr Suggests CBDC Decision Remains a ‘Long Way’

Visa Partners with Solana and USDC Stablecoin to Enhance Global Cross-Border Payments

Binance Reaches Out to Low-Cap Crypto Projects in an Effort to Enhance Trading Activity

  • DAI's market capitalization surged by nearly $1 billion this month after the implementation of reward rates reaching as high as 8%.
  • However, the higher payout had a negative impact on issuer MakerDAO's projected profits. As a result, MakerDAO decided to limit the rate to 5%.

 

MakerDAO's DAI stablecoin is experiencing a resurgence in growth, propelled by renewed interest in the token following the implementation of enhanced reward rates for its holders.

The total value of circulating DAI in the market exceeded $5 billion, marking the first instance since April. Crypto investors capitalized on interest rates reaching as high as 8%, driving this surge. This comes after a prolonged downturn, during which DAI's market capitalization plummeted to as little as $4.4 billion in late July, down from its peak of over $10 billion in early 2022, as reported by CoinMarketCap.

The expansion additionally gave a significant boost to Spark, a decentralized finance (DeFi) lending platform that utilizes Maker's credit facility and incorporates DAI. In the last month, the platform's total value of locked assets (TVL) surged nearly tenfold to reach $430 million, as reported by DefiLlama.

In pursuit of a transformative shift, Rune Christensen, the founder of Maker, unveiled a strategy last month to implement a heightened interest rate structure. This endeavor aims to enhance the allure of the stablecoin for cryptocurrency investors by leveraging earnings from protocol activities involving reserve assets like U.S. Treasury bonds, which will be utilized to distribute the incentives.

The Enhanced DAI Savings Rate (EDSR), often referred to as such, initially provided an annual reward of 8% on deposited funds. This rate was designed to adapt dynamically as the promotion gained traction among an increasing number of investors.

After introducing the EDSR in early August, DAI experienced an influx of almost $1 billion in investments.

Is DAI’s growth sustainable?

Nevertheless, uncertainties persist regarding the feasibility of maintaining this growth momentum and retaining new users over an extended period.

The additional payout has significantly eroded Maker's earnings, as highlighted in a report by Kunal Goel, an analyst at Messari. He stated, “Higher rates on higher deposits ballooned the protocol’s interest expense [and] has dried up profit expectations.” Additionally, the excessively high rate has created avenues for arbitrage, further emphasized by Goel.

This weekend, in order to address both problems, Maker decided to reduce the maximum rate to 5%.

This led to significant investors divesting from DAI, with Tron founder Justin Sun's controlled addresses alone redeeming approximately $200 million worth of tokens, as reported by WuBlockchain.

The TVL on the Maker-adjacent Spark protocol also experienced a decrease, dropping to $430 million from its peak of over $600 million earlier in the week, according to data provided by DefiLlama.