Dai Supply Hits New Highs as Efforts to Restore Peg See Limited Success

Published at: July 31, 2020

The MakerDAO community approved and executed a vote on Thursday to almost double the total debt ceiling, which indicates how much Dai (DAI) can be minted by its users.

An announcement by the Maker Foundation posted on July 29 details the specific proposal to raise the debt ceilings for Ether (ETH), USD Coin (USDC), Wrapped Bitcoin (WBTC) and others.

The vote passed at 8 a.m. UTC on July 30 and was executed at 10 p.m. UTC on the same day.

Specifically, the proposal raised the debt ceiling for ETH by 80 million to 340 million total, which follows two similar proposals that raised the ceiling from 160 million in early July.

Ceilings for other coins were also raised, as two USDC vaults with different parameters were raised by 100 million to a 170 million total, the WBTC ceiling was doubled to 40 million, and Basic Attention Token (BAT) limits were raised by 2 million to a total of 5 million.

This raises the maximum supply of DAI to 568 million, out of which 367 million have been minted so far, according to DaiStats.

The peg is not going down

The drastic increase is motivated by the fact that DAI has often traded above its peg of $1 ever since the events of Black Thursday in March, with a current market price of $1.02. The deviation has been exacerbated by the yield farming wars that started since June, as they stimulated demand for DAI.

Since the Maker system ensures that DAI is both minted and burned at a price of $1, creating new DAI should allow for the market price to go down as new supply enters circulation.

Members of the Maker community noted that the project essentially subsidized DAI minters by setting the ETH stability fee at zero, allowing vault creators to borrow DAI at no cost. DAI supply tripled since the beginning of July, but that did not fully restore the peg.

One possible reason why is DAI’s predominance in yield farming. About 50 million DAI is currently locked in Balancer pool to mine the YFII token, a clone of the YFI token that briefly dominated yield farming liquidity. The Compound DAI contract currently holds 172 million DAI, a significant increase since earlier this week.

Thus it appears that a significant portion of the DAI supply is being used directly to earn rewards, instead of being sold for a higher price than it was obtained for and restoring the balance. 

Plans to force the peg

The Maker community is currently discussing a direct arbitrage mechanism called the Peg Stabilization Module, which would create the possibility of directly swapping between DAI and USDC at a forced 1:1 rate. 

The idea is nevertheless finding some opposition, as many voiced concerns of excessive reliance on USDC and a fundamental change to the mechanism of the DAI peg from collateral-backed to market-based peg interventions.

Some other proposals floated in the community would involve a yield farming-like system of rewarding DAI minters with new Maker (MKR) tokens.

Tags
Business
Defi
Maker
Dai
Related Posts
Maker seemingly gives up on Dai peg as interest rates are raised above 0%
A MakerDAO (MKR) governance proposal enacted on Tuesday set interest rates on most assets, with the notable exclusion of Ether (ETH), back above 0%. According to Daistats, interest rates for the USDC-A, WBTC and other minor vaults are now back to being at 2%, meaning that the protocol is once again collecting revenue for those who borrow DAI against these assets. Lowering interest rates is generally seen as a way of stimulating DAI creation, which is supposed to lower its price to its intended $1 peg. While Cointelegraph recently reported that the price finally stabilized after a long period of …
Business / Sept. 8, 2020
Terra Protocol (LUNA) rallies 66% after DeFi and stablecoin launch
Throughout 2020 a handful of new stablecoins launched and many analysts have suggested that stablecoin growth is the backbone of the crypto sector and partially responsible for the current Bitcoin rally. For many traders, stablecoins provide a safe place to shelter during volatile periods in Bitcoin and altcoins but there are other ways to interact with these fiat-pegged assets. Terra Protocol aims to create a programmable algorithmic stablecoin available on every blockchain. Similar to its better-known competitor, Maker (MKR), Terra Protocol has a native stabilizing crypto-asset called LUNA. The project was created by a partnership of 15 large Asia-based e-commerce …
Markets / Dec. 19, 2020
Maker community thanks Yearn for seemingly restoring DAI peg
A new vault launched on Yearn.finance is being credited for finally restoring the peg of Dai (DAI), the algorithmic stablecoin of the MakerDAO (MKR) project. As Cointelegraph previously reported, Maker had struggled with maintaining a strict $1 peg for DAI since the start of the yield farming wars in June. Though it’s had ups and downs, the price of DAI consistently hovered around $1.02 in the past 30 days. As of press time, the price came down to $1. The community is crediting the yearn.finance project, which launched a new yield farming strategy that relies on minting DAI to farm …
Technology / Sept. 3, 2020
Maker's Value Locked Breaches $1B Ceiling, but There's a Caveat
MakerDAO (MKR), the foundational protocol of decentralized finance on Ethereum, hit a new all-time high in the total value locked in its vaults. According to data from Defipulse, the value of the collateral locked in MakerDAO vaults is now slightly above $1 billion following a steep ascent that began on July 22. Source: Defipulse.com Most of that growth is due to the powerful price rally of Ether (ETH), which is still the most used collateral asset for minting Dai (DAI). Since July 22, the amount of ETH locked in Maker rose by about 13%, while the U.S.-dollar value gained almost …
Business / July 27, 2020
Market maker Keyrock closes $72 million in Series B funding round
Digital asset market maker Keyrock has raised $72 million in a Series B round of funding, according to an announcement on Nov. 30. Ripple, SIX Fintech Ventures, and Middlegame Ventures are among the investors in the round. Funds are planned to be used on Keyrock infrastructure development, scalability tools, as well as regulatory licensing across Europe, the United States and Singapore. Keyrock CEO Kevin de Patoul said the company has been focused on a long-term perspective for its business in the past five years. He also noted that: “The new round of funding allows us to expand on that and …
Business / Nov. 30, 2022