- To stimulate interest in the Dai stablecoin, MakerDAO has reduced its fees.
- The move is poised to ramp up demand in the wake of major bearish sentiments towards cryptocurrencies.
- The modus operandi behind the reduction is to slash the cost of borrowing, which will in turn lead to increased adoption.
- Dai has made significant strides after the circulating supply rose to a value of over $5.1 billion this month.
Stablecoins are gaining ground in the cryptocurrency ecosystem with the sector marking significant growth, with the market capitalization of the sector presently standing at over $100 billion. In a bid to get ahead of its competition, MakerDAO has promised fee reductions for Dai.
The move comes amid increasing demand for the stablecoin and is geared to move ahead of the stiff competition. Dai is basking in the rays of reaching new heights of increased circulating supply, and the community is currently deliberating on the issue of flash loan payment.
MakerDAO has sent a strong signal to their competition with the latest announcement of reduced stability fees. The changes to the Maker protocol cast a wide net into the market as fees saw significant slashes. ETH-A’s stability fee, for example, was reduced from 5.5% to 3.5%, while the stability fee for LINK-A dropped from 5% to 4%.
At the time of writing, interest in stablecoins is waning as a result of crashing crypto prices, which has seen the global cryptocurrency market capitalization fall from highs of over $2 trillion down to $1.30 trillion.
The move by MakerDAO to reduce fees has been met with deafening applause from the cryptocurrency sphere, laying the foundations for a future bull run.
The Science behind the Art
The decision to slash the fees associated with Dai is an ingenious move to increase demand. Fees are an integral part of maintaining the stability of a given stablecoin, because the prices may fall below the $1 mark should CDP holders mint more than the market requires.
An increased fee raises the cost of borrowing DAI, and this has the unsavoury effect of reducing the incentive for minting the token. On the other hand, in the event of reduced fees, the cost of borrowing automatically drops, which inevitably leads to an increased interest in the minting of the token.
On the Flipside
- Although stablecoins are rising in popularity, the Bank of England has issued a grim warning that stablecoins may face further regulation.
- The Governor of the Bank, Andrew Bailey, stated that stablecoins have generated a host of issues and it is “essential that we ask the difficult and pertinent questions” regarding their future.
- The increased scrutiny around stablecoins comes at a time when central banks across the world are launching, or beginning their own CBDC projects.
Dai – The Stablecoin
Dai is the fourth largest stablecoin on the Ethereum network, which is issued and managed by MakerDAO. With a market capitalization and circulating supply of around $5 billion, the stablecoin sits above TerraUSD but just below BinanceUSD.
At the moment, holders of the MakerDAO token are deliberating whether or not to integrate flash loan capabilities into the network. If flash loan capability is voted for, it would see the minting of up to 500 million Dai for flash loans.
The likelihood of the flash loan proposal passing the voting process is high, as over 3,184 MKR have been rallied in support of the implementation of flash loans so far.