Just today, MakerDAO officially adjusted the DAI deposit interest rate of its lending protocol Spark Protocol to 8%. This is the "risk-free interest rate" of stablecoins that is higher than the current U.S. bond yield. People can't help but wonder whether the high yield is behind it. Ponzi model? Let’s talk about where this 8% “risk-free” return comes from? Is there a Ponzi model behind this? Are these gains sustainable? Why does MakerDAO do this?
It is limited to personal knowledge. If there are any errors, please point them out. It does not constitute any investment advice. Where does the 8% “risk-free” return come from? RWA has been a topic of heated discussion in the industry recently, and MakerDAO has become a RWA concept project that everyone is paying great attention to because it has introduced a large number of RWA assets.
Simply put, the purpose of MakerDAO introducing RWA assets is to use the ability of external credit to diversify the assets behind it, and to use the long-term additional income brought by U.S. Treasury bonds to help DAI stabilize its own exchange rate, increase the flexibility of issuance, and in Incorporating U.S. Treasury bonds into the balance sheet can reduce DAI's dependence on USDC and reduce single-point risks.
The introduction of a large number of RWA assets has also brought a lot of additional benefits to MakerDAO. We can see through Dune that the proportion of RWA assets has exceeded half of the entire MakerDAO protocol balance sheet.
A large number of interest-bearing RWA assets have brought more income to MakerDAO. We can see that currently more than half of MakerDAO’s income is brought by interest-bearing RWA assets. Most of the RWA assets are U.S. Treasury bonds, with an ownership of nearly 5%. The risk-free interest rate, and these returns will eventually go to MakerDAO's pockets rather than DAI holders.
Then the source of the 8% income is very clear. The MakerDAO protocol earns a lot of profits from RWA interest-bearing assets, and then uses these profits to pay 8% interest, but why does it do this? According to MakerDAO founder Rune, the purpose of setting the yield at 8% is to increase demand for DAI and DSR to ensure there is a growing user base participating in SubDAO and participating in other parts of Endgame.
Simply put, it is to increase the demand for DAI. More DAI = more collateral = more money to buy RWA interest-bearing assets = more income. On the other hand, it is to advance the progress of the Endgame plan, and Endgame is a concept of MakerDAO to achieve complete decentralization.
So is this 8% rate of return sustainable?
Let me first tell you the answer. It is unsustainable because the 8% interest rate this time is actually a one-time "promotion". We can see that in the discussion about increasing the DSR interest rate, Rune mentioned the introduction of a new mechanism: Enhanced Dai Savings Rate (EDSR), which is a mechanism used to temporarily increase the effective DSR available to users in the early bootstrap stage when DSR utilization is low.
To put it bluntly, there were not many people eating interest in DSR in the early days, so a one-time high interest rate was offered to attract users. EDSR is determined based on DSR and DSR utilization, and gradually decreases as utilization increases until it eventually disappears when utilization is high enough. EDSR is a one-time, one-way temporary mechanism, which means that EDSR can only decrease over time and cannot increase again even if DSR utilization decreases.
In other words, this 8% interest rate is a one-way one-time "promotion". When the more DAI deposited in the DSR reaches a threshold, the interest rate will decrease one-way and cannot increase again. According to Rune, When the usage rate of DSR reaches 50%, this excess interest rate will disappear and MakerDAO will never lose money. To put it bluntly, MakerDAO actually distributes some of its protocol income to DAI holders.
A brief summary is that MakerDAO spent a lot of money to buy a lot of RWA and made a lot of money. Then it adjusted the interest rate to 8% and distributed part of the profits to DAI holders to increase the demand and users of DAI. Once there are more people eating interest This interest rate will drop until it returns to normal levels.
