What impact will 8% DSR have on DeFi?

Author: 2Lambroz.eth, Crypto KOL; Translator: LianGuai0xxz

MakerDAO proposed on August 7th to increase the DSR to 8%. What is DSR? How does this change impact DeFi?

This article will cover four parts: 1. The impact of this move on the DeFi industry; 2. Does it benefit MKR and RWA? 3. Risks of MakerDAO; 4. Is MakerDAO really decentralized?

Key Points

DSR acts as an interest-bearing vault, similar to a savings account at a bank. Dai holders can deposit their Dai into DSR and previously earn a 3.19% yield, but the new proposal on August 7th increased the DSR to 8%.

The “risk-free” yield of DSR is 8%, which is attractive compared to the yields of mainstream stablecoins in the market.

If DAI occupies more market share in stablecoins, is it a bullish signal for MKR?

What is MakerDAO

Maker is a decentralized lending platform where users can deposit assets into the protocol to mint the stablecoin DAI.

MKR is a governance token used for voting on protocol fees.

The relationship between MKR and DAI: DAI being used more => generates more stability fees => more MKR bought back.

MakerDAO maintains a buffer of 50 million DAI, and when there is a surplus in this buffer, the excess amount is used for MKR buyback and burn.

These data can be viewed on makerburn:

Impact of DSR Increase to 8% on the DeFi Industry

Due to low transaction fees and low loan utilization rates, DeFi stablecoins have low yields. The low-risk yield of 8% from DSR is attractive, which will further decrease DeFi users’ interest in providing liquidity for swaps and lending on Curve, which recently suffered a hack attack.

Does it Benefit MKR and RWA?

High returns are often the best way to attract users. Remember Luna?

MakerDAO has revenue exceeding expenses (which is rare in crypto protocols), and this trend continues, with an annual profit of $84 million and a sexy price-to-earnings ratio of 14.6.

Furthermore, MakerDAO is one of the largest protocols in the RWA narrative. The potential of MakerDAO’s RWA has not been fully unleashed.

Risks

a16z sold its last MKR token last week

a16z’s Porter Smith mentioned that introducing MetaDAO would not improve the regulatory situation.

My personal opinion is: if you invest in any RWA, regulatory or potential regulatory changes will always be a risk that you cannot control.

Investing in DAI at an annual interest rate of 8% or just making small bets on MKR for fun delta? I might choose the latter.

Is MakerDAO truly decentralized?

When you use the SLianGuairk protocol UI to deposit DAI and earn 8% returns, it gives a prompt that you are in a restricted country and your IP address is blocked from accessing it.

Summary

In short, MakerDAO’s 8% DSR may further draw funds away from DeFi.

Can we say that if people are actually just looking for an 8% annual return in DeFi, the more people enter DSR = the more people are bearish on DeFi? Is DSR just a simple way for funds to flow out from other chains?

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