The Week in Dai: a Maker Interest Rate Hike, Fat Loans & a DeFi Bridge

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The Maker team’s popular Dai token is facing no shortage of intrigue this week, as activity around the stablecoin is swirling in more ways than one.

Fresh up is the implementation of the latest interest rate hike on MakerDAO collateralized debt positions, with the rate, the so-called Dai Stability Fee, now being set at 18.5 percent annually.

The new rate came into effect on July 9th on the heels of an Executive Vote — facilitated with MKR governance tokens — to authorize the hike having run its course after being initiated by the Maker Foundation Interim Risk Team on July 5th.

Maker Dai

As such, the new Stability Fee is up one percent from its previous position of 17.5 percent and up 18 percent from where it began at the start of the year, 0.5 percent; however the new rate is down from this year’s high to date of 19.5 percent, a mark hit in May 2019.

Change Is Always A’Comin’

Looking ahead, voting has now opened on the next round of community Stability Fee signaling, which could see the interest rate eventually rise to as high as 21.5 percent or as low as 13.5 percent.

As demand for Dai continues to grow and the cryptoeconomy and the ether (ETH) price have recently started uptrending, there’s a non-trivial likelihood the Dai Stability Fee will go higher in the short-term in order to maintain the stablecoin’s $1 USD peg — a peg that slipped earlier this year before mostly being righted in recent weeks.

Some in the crypteconomy have hailed the 18.5 percent Maker CDP interest rate as excessive and will undoubtedly do the same for higher rates, while others — like the Interim Risk Team — have argued such is required at times so that more users close their ether collateralized CDPs, which in turn burns down the Dai supply and helps keep the token’s dollar peg.

The Dai stablecoin currently has a hard supply ceiling of 100 million DAI, and the outstanding supply of the token is not far from that ceiling in being just over 91 million at present. As founder Michael McDonald noted to CoinDesk on Tuesday, if the ceiling continues to be neared, more rate hikes are all but certain. He said:

“I think DAI supply will continue to grow as markets stay bullish. If it starts hitting that 100 million and people still want to draw more DAI, you may have to really increase the stability fee. It all depends on what the governance decides to be about that.”

High Dai Stability Fee Isn’t Deterring Large Loans

Some traders are perfectly willing to pay a premium in order to take out Maker’s programmatic Dai loans.

That reality was evidenced anew on July 9th when an unknown user took out 1,000,000 Dai from a Maker CDP — all with just a few clicks on a computer, a whole lot of ether for collateral, and a $0.73 cent transaction fee.

It was only the second time such a seven-digit loan had been taken out, as the first 1,000,000 Dai loan ever was drawn just last month. They may be only the first of many to come, particularly if top cryptocurrency rises for the foreseeable future.

A Maker and Compound Bridge Appears

People refinance their traditional loans all the time. Now, DeFi proponents can refinance their CDPs too using the new MakerDAO x Compounder Protocol Bridge from the InstaDApp team.

Using contracts, the bridge allows users to port their CDP from Maker to Compound and vice versa in order achieve the best rates possible.

Within just 24 hours of the bridge’s release, the service had seen thousands of ether locked in Maker CDPs ported over to Compound, with many of the participating users acutely hunting for an interest rate lower than 18.5 percent.


William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Biticoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

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