MakerDAO implements temporary fee adjustments amid market volatility

The adjustments include changes to Maker Vaults, SparkLend DAI Borrow Rate, the PSM, the Dai Savings Rate (DSR), and the Governance Security Module (GSM) Pause Delay.

MakerDAO, the body responsible for the development of the MKR token, has passed a new Executive Vote to introduce temporary fee adjustments to strengthen the protocol due to heightened market volatility and bullish sentiment, resulting in a reduction in reserves for its stablecoin Dai (DAI).

The suggestion comes in response to a rapid decrease in Dai supply from $5 billion to $4.4 billion in the last week, as outlined in the proposal from BA Labs, a member of Maker’s Stability Advisory Council.

In the proposal, MakerDAO intends to expedite the approval process for a stablecoin stability measure if users opt to redeem a portion of the $1.1 billion in Real-World Assets (RWA) available on the protocol. Despite Dai being overcollateralized, using RWA vehicles as collateral poses potential liquidity issues if Dai’s selling continues.

 The proposal reads:

“Liquid stablecoin reserves and reserves deployed to RWAs are more than sufficient to sustain the increasing pressure generated by the potential bullish market sentiment. The issue lies in the liquidity crunch inherent in the exposure toward stablecoins deployed through RWAs.” 

Although Maker DAO’s ecosystem is stable now, it deems it necessary to anticipate potentially unpredictable user actions. The proposed measures include changes to Maker Vaults, SparkLend DAI Borrow Rate, the PSM, the Dai Savings Rate (DSR), and the Governance Security Module (GSM) Pause Delay.

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The adjustments include raising the stability fees on different collateral assets registered on the platform from 15% to 17.25%. In addition, it plans to increase the SparkLend DAI Borrow APY from the current 6.7% to 16%. The slate of changes was approved to go into effect tomorrow, March 10th, 2024, at 19:55 UTC.

Maker DAO also plans to make PSM Adjustments that will provide a cooldown for Debt Ceiling increases to drop from 24 to 12 hours. Other measures that will be implemented include the increment of the Dai Savings Rate to 15% and the GSM Pause Delay from 48 hours to 16 hours for swifter implementation of future adjustments.

While these adjustments are temporary, there is no automatic process for reverting the fees. GFX Labs, a blockchain research and development company, expressed on the proposal’s discussion page that the changes were in the right direction but raised concerns about their magnitude, fearing potential market dislocations and disruptions.