MakerDAO Implements Interim Fee Adjustments to Strengthen Protocol

• The recommendation was by BA Labs, a member of Maker’s Stability Advisory Council.
• The Peg Stability Module and Spark Effective Borrow APY will also undergo modifications.

Due to an episode of increased volatility which has led to a decrease in the reserves of its dollar-pegged stablecoin dai, MakerDAO has instituted a series of interim fee adjustments intended to strengthen the protocol.

The recommendation was brought out by BA Labs, a member of Maker’s Stability Advisory Council, in response to a precipitous decline in dai supply—from $5 billion to $4.4 billion—during the previous week. Even if dai is still overcollateralized, if further dai sales occur, there may be a liquidity crisis since some of the collateral is held in real-world asset (RWA) vehicles.

The proposal reads:

“Liquid stablecoin reserves and reserves deployed to RWAs are more than sufficient to sustain the increasing pressure generated by the potential bullish market sentiment. The issue lies in the liquidity crunch inherent in the exposure towards stablecoins deployed through RWAs.”

Several Enhancements

The proposal’s stability has been enhanced with a series of accepted improvements, which will be implemented on March 10th. These enhancements include raising the dai savings rate from 5% to 15% and around 9-10% increases in the stability fees for its main vaults. The Peg Stability Module and Spark Effective Borrow APY will also undergo modifications.

Although the modifications are intended to be transitory, there doesn’t seem to be a system in place to automatically reverse the fees. The blockchain research and development firm GFX Labs stated on the proposal’s discussion page that the modifications were “directionally correct,” but that the magnitude of the advances is excessive for a single action and may cause market disruptions and dislocations.

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