Is DAI's 8% excess "risk-free rate" Ponzi?

Not long ago, MakerDAO officially adjusted the deposit interest rate of DAI in its lending agreement Spark Protocol to 8%, which is a stable currency "risk-free interest rate" higher than the current US bond yield. Is it the Ponzi model?

Where does this 8% "risk-free" return come from? Is this behind the Ponzi model? Is this benefit sustainable? Why is MakerDAO doing this? (Related reading: "Proposal with No Opposition: MakerDAO Raises DSR to 8%, What Are the Pros and Cons for the Protocol?")

RWA has always been a topic of heated discussion in the industry recently, and MakerDAO has become an RWA concept project that everyone is very concerned about because of the introduction of a large number of RWA assets. This article has a detailed analysis of the logic of MakerDAO’s introduction of a large number of RWA assets: Buy 1.2 billion US dollars debt! What is the intention of MakerDAO to introduce RWA real assets?

To put it simply, the purpose of MakerDAO's introduction of RWA assets is to diversify the assets backed by the ability of external credit, and the long-term additional income brought by U.S. treasury bonds can help DAI stabilize its own exchange rate, increase the flexibility of issuance, and The inclusion of U.S. Treasury bonds in 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 income to MakerDAO. We can see through Dune that the proportion of RWA assets has exceeded half of the balance sheet of the entire MakerDAO protocol.

Data Sources:

A large number of interest-earning RWA assets have brought more income to MakerDAO. We can see that more than half of MakerDAO’s income is currently brought by RWA asset interest-earning assets. Most of the RWA assets are US treasury bonds, accounting for nearly 5%. The risk-free interest rate, and these proceeds will eventually go to the pockets of MakerDAO instead of DAI holders.

Data source:

Then the source of 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 do it do this? According to Rune, founder of MakerDAO, the purpose of setting the yield rate at 8% is to increase the demand for DAI and DSR to ensure that there is a growing user base participating in SubDAO and participating in other parts of the Endgame.

source:

To put it simply, it is to increase the demand for DAI. More DAI = more collateral = more money to buy RWA interest-earning assets = more income. On the other hand, it is to promote the progress of the Endgame plan, and Endgame is MakerDAO In order to achieve a concept of complete decentralization.

**So is this 8% yield sustainable? **

Let me talk about the answer first, it is unsustainable, because this 8% interest rate is actually a one-time "promotion", we can see that in the discussion of raising the DSR interest rate, Rune mentioned that a new mechanism was introduced: Enhanced Dai Savings Rate (EDSR), which is an effective DSR used to temporarily increase user availability during the early boot phase when DSR utilization is low.

To put it bluntly, there were not many people earning interest in the early DSR. user. 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 ad-hoc mechanism, which means that EDSR can only be reduced over time and cannot be increased again even if DSR utilization decreases.

In other words, the 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 in one direction and cannot be increased again. According to Rune, When the utilization rate of DSR reaches 50%, this excess interest rate will disappear, and MakerDAO will never lose money. To put it bluntly, MakerDAO 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, and then adjusted the interest rate to 8% and distributed part of the profits to DAI holders to increase the demand and users of DAI. Once more people eat interest This rate will drop until it returns to normal levels.