Dai Cryptocurrency Lending Rates
Dai is a decentralized stablecoin created by Maker, a sector leading cryptocurrency lending protocol.
Users lock supported collateral in order to mint new Dai, with that collateral being unlocked when the loan is repaid. Anyone can mint new Dai, and with four collateral types and counting, the flexibility to create Dai with an asset of your choosing is increasing by the day.
At the time of writing, Dai currently supports ETH, WBTC, USDC and BAT as collateral.
Maker was founded in 2015, making it one of the very first DeFi projects. The company is backed by prominent entities such as Andreessen Horowitz Polychain Capital and Vitalik Buterin, one of the inventors and founders of Ethereum.
Maker’s role in the larger DeFi ecosystem has lead to Dai serving as the defacto stablecoin for most applications while the Dai Savings Rate – a passive interest-earning opportunity on Dai – is largely seen as the sector’s Risk-Free Rate.
There are a bunch of great tools to track the growth of Dai, including trusted dashboards like Dai Stats which displays key metrics about supply, collateral and debt ceilings.
Historical Dai Savings Rate Changes
Here’s a look at the Dai Savings Rate has changed since inception. We update this table periodically as it changes within Maker based on the outcome of executive polls.
|Date Changed||New DSR||Change (+/-)|
|March 24th, 2020||0%||(-4%)|
|March 19th, 2020||4%||(-4%)|
|February 26th, 2020||8%||(+0.5%)|
|February 12th, 2020||7.5%||(-1.25%)|
|February 5th, 2020||8.75%||+1%|
|January 27th, 2020||7.75%||+1.75%|
|January 8th, 2020||6%||+2%|
|December 7, 2019||4%||(0)|
Recent Dai News
The overarching story on Dai is the recovery from Black Thursday, where Dai has been idle at 0% for the better half of 2 months. This rate has created a rift in the DeFi ecosystem as many lending projects are reliant on the DSR to drive Dai lending rates. The bright side of this rate is that minting new Dai has never been cheaper, with all collateral types having at or near 0% stability fee – meaning there is no incurred debt on an outstanding loan.
To this end, we’ve seen the recent addition of WBTC as a collateral type propel the creation of new Dai, quickly bumping it up to the second most-used collateral type behind ETH. We suspect that this growth is largely driven by the appealing stability fee for Bitcoin whales.
The news of WBTC growth comes as promising trend as many community members were wary of Maker’s direction following the addition of USDC as a collateral type, contradicting what many believe to be Dai’s core ethos of being trustless. To provide some color to this sentiment, many argued that supporting a trusted asset like USDC (which is controlled by a central entity – Coinbase) adds a trust vector that could negatively affect the system in the event Coinbase went rouge.
If one thing is for sure, the fact that Dai is now approaching its ATH supply despite a 0% DSR signals that DeFi (and Dai) are as strong as ever!
To keep up with changes to Dai’s interest rates and it’s implications in the wider DeFi ecosystem, check out our newsletter!
For those unaware, Dai has long taken lead as the stablecoin of choice within DeFi. Here are a few reasons why:
- Stability – As a stablecoin, Dai aides in the volatility of cryptocurrencies while maintaining the essential features of accessibility, censorship resistance, and distributed governance.
- Collateralization – Unlike other stablecoins, Dai is backed by popular cryptocurrencies such as Ether ($ETH) rather than by an equivalent amount of fiat dollars.
- Trustless – Dai aims to be as trustless as possible, meaning there should be limited reliance on the third party to custody collateral like how US Dollar Coin (USDC) relies on Circle to custody the US Dollars backing the supply.
- Non-custodial – With Dai, all cryptocurrencies backing the supply are stored through audited smart contracts rather than by a third party like Circle.
- Accessibility – Dai can be acquired by opening a Vault using Oasis Borrow (explained more in the how Dai works section) or on exchanges like Binance, Coinbase and Uniswap.
- Composability – Dai can be loaned or borrowed on a wide range of DeFi products like Oasis, Compound, or dYdX to earn passive income. Similarly, we’ve seen dozens of Dai token flavors emerge for Dai to be used in new and unique ways.
Top Picks for Dai Lending
The most popular use-case for Dai is lending due to the stable nature of the currency and has historically held the highest lending rates on the market
Compound is the second largest lending protocol behind Maker. Users can also borrow assets from Compound, but are required to post collateral (like Dai) to increase their maximum Borrowing Power. Each asset has different lending and borrowing rates, all of which are listed as annualized percentages.
- Dai loaned on Compound is returned as cDai – Compound’s interest-earning version of Dai – which has different returns from the DSR.
- Interest rates on cDai can be swapped with up to 10x leverage on Swap Rate.
Aave is a rising lending protocol focused on the creation of new money market protocols. As the lending protocol currently offering the highest rates on Dai (without a strong degree of inherent risk) Aave is a great place to lend and borrow Dai without worrying about the safety of the underlying protocol.
- Aave supports both stable and variable interest rates, giving stable and borrowed loans flexibility that other lending protocols lack
- Aave offers the most diverse range of DeFi tokens, meaning users can use supplied Dai as capital to take out a loan in a number of rising assets
- Users can trade their aDai interest rates on SwapRate with up to 10x leverage.
- When lending on dYdX, users are always collecting interest, even when Dai is being used on a short position.
- Interest rates on dYdX are dynamic, meaning they can trade at different rates from Oasis or Compound.
- dYdX utilizes metatransactions, meaning once Dai is deposited, there is no cost to trade it within the exchange.
Curve is a stablecoin lending aggregator supporting a suite of the industries top stablecoins. The protocol has historically offered the highest returns on stabelcoin lending, including that of Dai.
- Users can seamlessly add liquidity to Curve using intuitive front-end tools like iEarn
- Curve allows users to quickly swap between various stablecoins with minimal slippage
- Oasis is the native platform of Maker, meaning that any changes that happen on Oasis are as close to the source as possible.
- There is no minimum deposit required, meaning you can lock in as little as $0.01 into Oasis Save.
- Locking Dai in Oasis is quite convenient as it’s stored in the same portal as outstanding Maker loans. This makes for as little steps as possible when trying to manage an outstanding position
- Thanks to the Dai Savings Rate, users can very quickly and easily keep up with the APR being earned on Dai lending.
How Dai Works
Dai is created using smart contracts. Users post collateral (in the form of Ethereum-based assets) to create new Dai through Maker Vaults.
All Vaults require a minimum of 150% collateralization, as to ensure that there is always more value backing Dai than the token itself at any given time.
When opening a new loan, borrowers incur a debt called a Stability Fee. This fee must be paid to close a loan and is ultimately used to compensate various parties – such as Maker Oracle providers – who are responsible for providing the protocol with crucial information to maintain its peg.
When Vaults are closed (meaning outstanding balance is repaid), Dai is burned – removing it from the circulating supply. The circulating supply of Dai is a direct representation of how much Dai is currently in existence, all of which is backed by an overcollateralizaed amount of supported assets locked in smart contracts.
DeFi Products Using Dai in 2020
Here are a list of all the DeFi projects currently supporting Dai which we’ve covered on our site. Please note that Dai is supported on many more products which we have not listed as well.
- 0x Protocol
- DeFi Saver
- Kyber Network
- Set Protocol
The important takeaway here is that regardless of what sector is being examined, Dai is playing a crucial role in the underlying nature of that protocol. Moving forward, we expect Dai to serve as a crucial lego for future DeFi comparability.
Dai favors any use where volatility may be unfavorable. Within DeFi, Dai is commonly used in protocols like Compound for permissionless lending, and in protocols like dYdX for derivatives trading. In Augur V2, Dai will be used to settle all bets on the permissionless prediction market.
Unlike other stablecoins, Dai is not backed by fiat currencies. Dai is pegged to the equivalent of 1 US Dollar, meaning 1 Dai will always be worth 1 US Dollar.
Dai is permissionless and non-custodial. This means that no-one (not even Maker) has the ability to create or claim Dai without following vetted protocol procedures.
Seeing as it is backed by a basket of volatile assets, Dai’s price commonly sways fractions of a cent off of it’s peg. Within the industry, most major players and individuals will always value 1 Dai at $1.
Cooper is the Editor of DeFi Rate. He is an ambassador of Set Protocol and an active contributor to MetaCartel where he seeks to find emerging consumer-facing applications that propel the Ethereum ecosystem. He often works with projects as the Director of Fitzner Blockchain Consulting where he coauthors the weekly publication Token Tuesdays.
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