Aave has announced launching the sDAI pool following a reduction in the DSR yields. DSR refers to the DAI Saving Rate. It was originally set to 3.3%, later pitched up at 8$, only to bring it down again. Rune Christensen, the Co-Founder of MakerDAO, has suggested further lowering the DSR yields as the TVL keeps dancing up and down.
Per a report published by Dune Analytics, the TVL of DSR was last seen sitting at $1.26 billion. sDAI TVL has touched $900 million since the rate was boosted. That happened in early August 2022. Days later, and the story is a bit different now.
Aave v3 has enabled the support for yield-bearing DAI as collateral. Users were quick to note that sDAI can be deposited. Hence, users went on a cruise of depositing $37 million sDAI in less than 24 hours of the launch. All the deposits have happened on Aave v3.
Prompting this action is also MakerDAO pushing the yield to a massive 8% from just 3.3%. August 06, 2023, saw MakerDAO take assistance from Spark Protocol to drive up the adoption efforts. The result was that the total value locked of DSR went up by more than $1 billion. Thirteen days later, Spark Protocol was all maxed on its debt ceiling.
While the TVL increased on one hand, the other hand saw the yield being brought down to 5.8%. There’s no point in guessing that the TVL also came down with it.
Reports state that the total value locked was at $1.12 billion from $1.5 billion. It did regain some value to bounce at $1.26 billion. The numbers are true per the findings of Dune Analytics, not shedding any light as to how the TVL regained the value if the yield was a major driving force.
Rune may not have given the answer to this question, but they have hinted that the only section to benefit from the increase in yield was whales. Rune Christensen has commented that Whales massively benefited from this in a disproportionate manner, adding that the original intention was to actually benefit regular users of DAI. The experiment was a success, believes Rune, but they have proposed bringing down the rate further to 5%.
Assuming that happens, it will be lower than the rate that is already below the hyped figure of 8%. A way in which the balance can be brought in by increasing the borrowing rates across the vaults of Maker and Spark Protocol. ETH vaults are likely to be excluded from this development. The core objective is to keep whales away from participating in recursive lending.
Moving forward, early Spark Protocol users can expect a retroactive subDAO farming airdrop. Suggestion has been made by Christensen, also stating that attempts should be made to offset the blow that the increased borrowing rates have caused.