Maker Foundation’s Rescue Proposal Drops Stability Fee to 0
Facing a serious jam, MakerDAO proposes reducing DAI's stability fee to zero in hopes of improving user activity.
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The Maker Foundation is proposing new risk parameters, including a reduction of the DAI stability fee to zero. Users with DAI in the DAI Savings Rate (DSR) will not earn interest on their holdings if MKR holders vote for the proposal.
Rescue Proposal Offers Incentives Galore
Maker and DAI have been hit by a crisis in the last week.
After liquidated collateral was auctioned for free, the network fell into a deficit. Since then, DAI has been trading at a premium to its peg.
The Maker Foundation has suggested dropping the stability fee to zero in a bid to incentivize DeFi users to mint DAI and sell it in the market for an arbitrage profit.
This would help restore the stablecoin’s parity with the US dollar.
Additionally, the proposal means that the DAI Savings Rate (DSR) will also go to zero, so those with funds deposited in the DSR will not earn interest until the stability fee is increased.
Minting Single Collateral DAI (SAI) also entails a 3.5% stability fee, which was reduced from 7.5% as it has also deviated from its peg. However, SAI has had muted growth since Multi Collateral DAI was released, so it may not need a 0% fee for the price to return to its peg.
The MakerDAO’S proposal will also try to reduce the deficit via the issuance of new MKR. Funds secured from this issuance are to be used to recapitalize the network. Crypto news outlet The Block reported that the Maker Foundation has won 33 out of 33 auctions thus far.
The community-driven backstop syndicate is unlikely to see action if the Foundation keeps the base price for MKR auctions high.