Compound’s DAI Deposit Rates Hit One-Month High As COVID-19 Impact Sets In

Crypto market investors are showing a growing interest in stablecoins, as seen in the exponential growth of the low volatility cryptocurrencies. Open finance meanwhile has witnessed similar growth as more borrowers and lenders take to these platforms, seeking to navigate the present economic times.

The impact of COVID-19 is evident in the massive borrowing demand of DAI on Compound recently. The deposit rates on DAI reached a one month high of 12.67% since March 16th, as the price of DAI remains slightly above its pegged $1 and increased withdrawal of DAI.

🚨#DeFi Lending Rates Alert 🚨

There's been a massive increase in Dai lending rates on @compoundfinance

Rates have spiked to 12.81% APY on Dai deposits as the lending pool's utilization ratio is over 100%

More details to come🕵️https://t.co/EB03kjfRSU pic.twitter.com/eFehUqqTq9

— DeFi Rate (@DefiRate) April 20, 2020

DAI Deposit Rates at 1-month High Rates on Compound

According to data from Codefi, deposit rates of DAI on Compound spiked to a high of 14% on 7.00 PM UTC. This was the highest price point since the Mar.16 madness that saw $8 million in Maker funds auctioned for zero dollars.

DAI is a stablecoin that pegs in a 1:1 ratio with the dollar but, in the past few days, the price has been trading above $1, forcing most investors to withdraw their funds and sell at a premium. It's expected that the price of DAI will return to normal peg prices in the future.

The lack of lending liquidity has only grown over the past week with 8.4 million DAI withdrawn from Compound in ten days.

According to Compound CEO Robert Leshner, the increasing rates on DeFi is causing strain on the protocol as the borrowers cannot obtain enough liquidity. He said:

“Over the past few days, many Compound users have begun withdrawing DAI, and in some cases selling it above $1 in anticipation of DAI returning to its peg.

DAI markets have been under considerable stress the past few weeks, with the price of DAI consistently being above $1.”

The price of DAI is currently at $1.01 with Compound deposit rates leveling out in the mid-single-digit region at 6.24%.

Maker’s Solution to Rising DAI Rates

Over the past week, Maker plans to add Chainlink (LINK) as a DAI collateral in a bid to stabilize the price of DAI. Leshner said:

“Meanwhile, MakerDAO is responding with proposals to increase the number of assets that back dai, which will allow more dai to be minted, lowering its price.”