Diar: MakerDAO Increases Stability Fee to Decrease Growing Supply, Will Positive Effects Await?

The stablecoin DAI has been experiencing a set of fee hikes that are currently sitting at 14.5%. Last week, the MakerDAO community decided to increase fees from 11%. This stability fee is 2800% higher than at the beginning of the year and it reduced the supply to decrease by 3.5% since the end of March.

MakerDAO Increases DAI Fees

According to a recent report released by Diar, supply was close to 95 million DAI before the stability fees moved from 3.5% to 7.5%. This produced a decrease of 4.7% larger than the last stability fee increase.

At the same time, on-chain transactions have been falling as well since the beginning of the year. Meanwhile, the supply kept growing month after a month reaching a record in March. The digital currency is having issues to be traded at the desired US dollar peg. Indeed, DAI is being traded in the market under that level.

Now, it became cheaper to borrow Dai off Compound Finance, a decentralized lender and borrower than opening a Collateralized Debt Position (CDP) on Market that would create new Dai. This is positive for Dai. Users could start borrowing funds from these Decentralized Finance (DeFi) applications rather than minting new Dai coins in the market that would keep increasing the already inflated supply.

Dai started to move away from its dollar peg at the end of 2019. At that time, the stability fee was close to zero, but it started to grow in February. In March and April, the stability fee skyrocketed, but the effect on Dai’s price was not enough to revert the bearish tendency. If the stability fee has its desired effect, Dai could start increasing its value and reducing its supply.