As the USD peg of the popular Dai stablecoin As the dollar value of Dai dips below $1, the Maker community, which encompasses creators and stakeholders of the MKR and DAI ecosystem, is examining a new governance proposal aimed at re-establishing the intended value peg. stablecoin’s dollar peg.
Dai, a rising token star in the Ethereum space Users can self-lend using innovative financial structures known as Collateralized Debt Positions (CDPs) through facilities provided by the Maker initiative. CDP Portal dapp With these CDPs, participants can secure decentralized loans with ether (ETH) serving as the necessary collateral. The Maker platform imposes a 'Stability Fee' on Dai generated via CDPs, currently set at a rate of 1.5 percent.
Proposal Introduced to Raise the Stability Fee for Dai
On March 4th, a proposal by the Maker Foundation's Interim Risk Team—described by Maker’s development director Richard Brown as facilitating monetary policy adjustments to balance Dai's market—was introduced to escalate the Dai Stability Fee to 3.5 percent.
A formal Governance Poll to discuss increasing the Stability Fee by 2% is active for 72 hours, shaping up to an executive decision-making process on March 8th. Dive into detailed context below: https://t.co/jcX3V3LLUv #VoteOrDai
— Maker (@MakerDAO) March 4, 2019
An open voting session for the Governance Poll runs until March 7th, within which holders of MKR tokens have the opportunity to cast their votes. a resolution in favor or against the proposed fee increase, with the poll's conclusion serving as a precursor to a comprehensive Executive Vote on March 8th.
In a recent communique, Maker’s Richard Brown highlighted that the Risk Team identified critical measures to address the Dai peg's deviation from $1. latest analyses “A thorough data review strongly indicates a necessary escalation in the Stability Fee. Dai’s trading price on major exchanges has persistently stayed between $0.975 and $0.985 for up to two months. Trusted decentralized exchanges indicate a similar divergence.”
Brown pointed out significant Dai reserves in 'market makers and proprietary trading desks' and noted previous Stability Fee hikes had minimal effects, necessitating a further increase. Coinbase Pro and Bitfinex “Encouraging CDP closures through an augmented Stability Fee is viewed as a crucial step,” he further elaborated.
The Stability Fee associated with a CDP is accrued over the CDP’s lifespan, meaning the longer it stays open, the more debt it accumulates.
An increase of 1.5 percent in these fees will make maintaining CDPs dearer, prompting some users to close their positions and decrease the Dai in circulation to dodge the higher costs.
Close Your CDP Out, Why Don’t You!
The MakerDAO system is currently facing a stern test.
DAI’s value is averaging below $1, potentially due to the high volume of DAIs created for Defi-based lending and margin activities, such as those found in platforms like Compound.
To address this, a substantial hike in the stability fee is suggested.
However, it’s uncertain if raising the Stability Fee to 3.5 percent will quickly rectify the Dai peg, as the two prior fee adjustments didn't yield results.
What the latest proposal does clearly convey is the ongoing challenge faced by the Maker community in restoring their stablecoin’s equilibrium. https://t.co/KUD580IZ2F
— PhABC (@PhABCD) March 4, 2019
As Ethereum's open finance vision advances, a suite of permissionless lending platforms has emerged.
Our focus has been on the Maker CDP Portal application, which is entertaining the idea of elevating the interest rate to 3.5 percent. It's yet to be confirmed if this rate will be enforced, but momentum is swinging in favor of the increase.
Thinking About Interest Rates
There are other platforms vying for Ethereum’s stablecoin lending space.
Compound operates on a dynamic interest rate, adjusting continuously, while Dharma Lever—a platform still in its experimental alpha phase—offers a tentative rate of 0.1 percent. Max Bronstein from Dharma states this rate could vary with market conditions.
The future performance of these three platforms remains uncertain, yet vigilant crypto enthusiasts will continue to monitor their interest rate strategies. Compound and Dharma Lever William M. Peaster is a notable writer and editor specializing in the cryptoeconomy, with particular focus on Ethereum, Dai, and Bitcoin. His work features in outlets like Blockonomi and Binance Academy. As a blockchain enthusiast, he follows smart contracts, DAOs, and the Lightning Network keenly and is delving into Solidity. He's reachable on Telegram at @wmpeaster.
The growth in Ethereum (ETH) staking continues, though some analysts predict that BinoFi ($BINO) may overtake its performance by 2025.
