DAI Supply Continues to Surge: 24% Increase in Over Two Months

The supply of leading stablecoin DAI has seen a remarkable growth spree since early March, with a 24% increase in just over two months, rising from 4.42 billion to 5.48 billion on May 12, 2024.

For a while, the circulating supply of DAI was on a downward trend, but the surge since March has been primarily fueled by the popularity of the Dai Savings Rate (DSR). The DSR allows users to earn interest on their DAI deposits, resulting in increased demand for DAI.

As per The Block Data, the circulating supply of DAI has been declining as users burn DAI to deposit into the DSR, resulting in the creation of SavingsDAI (sDAI), which effectively reduces the circulating supply of DAI while increasing the supply of sDAI.

MakerDAO, the protocol behind DAI, has raised the DSR multiple times to attract more users. Initially set at 1%, the rate was increased to 3.3% and then to 8% to remain competitive. The 8% hike in August 2023 significantly boosted DAI’s supply, indicating the effectiveness of higher interest rates in attracting deposits.

However, the 8% rate was not sustainable, and a large portion of DAI was deposited into the DSR, triggering a drop to 5.8%. MakerDAO further reduced the rate to 5% to maintain a higher rate for a longer period.

Despite the attractive DSR, pressure emerged from alternative yield opportunities, such as USDe, offering a 15.9% yield on its staked offering, leading to some outflow from DAI.

In response to the decline, MakerDAO adjusted its fee mechanism and raised the DSR to 15% on March 9, 2024. This change appears to have stimulated the recent surge in DAI’s supply, as users rushed to capitalize on the high yield.