The DAI savings rate was increased to 1% in December
A fallen crypto giant will make a large deposit into DeFi’s oldest and largest lending protocol.
OlympusDAO, which aims to develop what it calls a “decentralized reserve currency” and has been the poster child of the “DeFi 2.0” movement, has voted to deposit 77 million DAI into MakerDAO’s DAI Savings Rate (DSR) module.
Maker, which issues the DAI stablecoin against overcollateralized debt positions, effectively restarted the DSR when it raised its rate from 0% to 1% in December.
Jennifer Senhaji of Maker’s growth team told The Defiant that while a 1% return in 2021 would have been derided, times are different now and OlympusDAO’s upcoming deposit shows the newly launched DSR is moving the needle.
‘Risk free’
“This is actually very valuable for DeFi, especially at this point in the market, as it is essentially a risk-free return,” she said, clarifying that there is no real added risk with DSR deposits beyond that Keeping DAI goes beyond.
The stablecoin comes with some risks — one of the most cited criticisms is that DAI is partially backed by USDC, a centralized stablecoin that has blacklisted crypto addresses in the past.
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The DSR was introduced in November 2019 and saw interest rates rise to over 7% in 2020. Olympus’ proposal to deposit assets into the DSR cited the module’s battle-tested code as the reason for trusting it with $77 million.
That number accounts for over 75% of the project’s DAI, according to a dashboard showing Olympus’ treasury as of Jan. 27.
As is usual with DeFi, Olympus does not need to seek permission to make the deposit. No member of the project even contacted anyone at Maker prior to voting, Senhaji said.
Composite integration
She added that Maker is in talks with Compound, a $1.6 billion lending protocol in its smart contracts, to integrate DSR under the hood to effectively add a percentage point of return to users offering DAI on Compound.
The DSR comes without locking, so a project or user can withdraw their DAI from Compound whenever they want. The governance of the protocol would have to approve the integration of the DSR.
It wouldn’t be the first time – in 2019 Compound integrated the DSR when the Maker module was first launched.
2021 returns were ‘delusional’
Olympus’ deposit comes at a time when a common view in DeFi is that yields have fallen and therefore open-ended funding is no longer useful.
However, Andre Cronje, the controversial founder of Yearn Finance, a yield aggregator and quintessential DeFi project, published a post arguing that 2021 yields are indeed delusional.
“By any feasible metric, real yield and DeFi have increased significantly,” Cronje wrote.
The maker’s redeployment of the DSR may be part of the “real yield” based on actual user activity on lending and trading protocols that Cronje argues for.
real world assets
The Collateralized Debt Protocol continues to dig deeper into real asset (RWA) transactions and uses the proceeds from these ventures to pay the 1% DSR rate.
While the yield isn’t much compared to US Treasuries these days, the DSR rate is accessed by simply triggering a smart contract. This is in contrast to the more onerous process of trading crypto against dollars or relying on a custody solution to access Treasury returns.
The DSR is also more secure than other earnings in DeFi, many of which have been “re-pledged,” Senhaji said. Re-lien occurs when an asset pledged by a company as collateral for a loan is then used by a lender to secure another loan.
DeFi 2.0
No project has evolved so much from a hotly debated topic to an almost invisible development in the last year and a half as OlympusDAO.
At one point, it was a flagship of the short-lived “DeFi 2.0” movement, which focused on protocols that possess their own liquidity. Ultimately, Olympus’ OHM token plunged over 90% from its highs to the level where its treasury fully supported it.
Despite the demise of Olympus, the OHM token still has a market cap of $282 million, according to CoinGecko — that’s ahead of other big DeFi players like decentralized exchanges SushiSwap and Balancer.
Maker’s MKR token has slightly underperformed Ether this year – according to The Defiant Terminal it is up 28% while ETH is up 31%.
ETH Price + MKR Price + BTC Price + QQQ Price, Source: The Defiant Terminal
Maker’s resurrected DSR received another vote of confidence from Vitalik Buterin – the Ethereum co-founder deposited over $279,000 into the DSR on Jan. 24.
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