The MakerDAO team, creators of the DeFi dual-token MKR and DAI ecosystem, is now moving ahead on an executive vote to grant or veto a new community proposal to raise Dai’s lending fees another two percent, to 16.5 percent annually.

MRK holders had voted between April 22nd and April 25th on whether to keep the Dai Stability Fee (DSF) at 14.5 percent or to raise it one, two, three, or four percent. That rate has fluctuated wildly in recent weeks as a steady stream of hikes have been voted into place in an attempt to return the peg of the Dai, a stablecoin, to $1 USD.

Maker Dai

At press time, the Dai is trading just over $0.95 — nearly five cents below where the coin’s community wants it to rest as a stablecoin. The DSF has changed from 1.5 percent, to 3.5 percent, to 7.5 percent, to 11.5 percent, and now from 14.5 percent to 16.5 percent since March.

The idea? Higher lending costs will cause people to close out their Maker CDPs, or collateralized debts positions, wherein users put up ether (ETH) via smart contracts in order to borrow Dai against it.

When a given CDP is closed, its loaned Dai get burned, decreasing the overall stablecoin‘s supply. The Maker Foundation Interim Risk Team, which helps to guide monetary policy in the early MKR ecosystem, has repeatedly asserted in recent weeks that increasing the DSF will lead to a spate of CDP closures that should push the Dai back toward $1.

Previous DSF hikes proved inadequate in righting the peg, so the hope is that a very expensive rate like 16.5 percent will finally start to cause some serious pressure on CDP owners. Other DeFi lending plays like Compound and Dharma presently offer cheaper interest rates in comparison.

In any case, the rapid rising of the DSF shows the majority of the Maker community is comfortable with high volatility in that rate for now. Whether the 16.5 percent fee will itself be temporary will be an open question going forward.

More Than Just Peg Woes Afoot

Recent reporting indicates there’s been a spate of infighting that’s broken out among Maker’s leadership.

Last year, MakerDAO CEO Rune Christensen apparently commandeered a community development fund worth over $100 million USD. That increased involvement led to some Maker team members opening up a “Purple Pill” chat group in an attempt to band together to push for decentralizing, not centralizing, the project.

In the wake of Christensen discovering the Purple Pill, he pushed for the five directors of the MakerDAO Ecoystem Growth Foundation (MEGF) to resign according to a legal letter sent by those directors to Maker’s executives. The MEGF directors are standing their ground and contesting that Christensen can force them out unilaterally.

Per that aforementioned letter, once Christensen confronted the Purple Pill members, he commented that their actions had threatened the Maker project itself:

“These ‘conversations’ had ‘[…] put the entire project at critical risk’ and ‘[…] the livelihoods of all of you working for the project at stake […].'”

With that context, it’s clear the Maker community undoubtedly has some serious tensions to work through in the coming months.

If the crypto play and its principal leaders can weather the storm agreeably, then the project stands a solid chance of maintaining its DeFi dominance — Maker’s CDPs currently have $320 million worth of ether collectively locked up per the tracker website DeFi Pulse. That sum is 10 times more than the $32 million worth of ETH locked up in second-place DeFi contender Compound.

It’d also be an opportune time for the Dai to stabilize, as the latest scandal around tether’s reserves suggests there’s room for another stablecoin to win over some market share from USDT.


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Posted by William M. Peaster

William M. Peaster is an editor and cryptocurrency writer. He is not a financial adviser. He enjoys covering both the promise and warts of the emerging cryptoeconomy. Follow him on Twitter: @WPeaster


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