MakerDAO Implements Emergency Measures to Address DAI Liquidity Crunch

MakerDAO Implements Emergency Measures to Address DAI Liquidity Crunch

MakerDAO, the decentralized finance (DeFi) protocol behind the DAI stablecoin, has enacted emergency measures to address a potential liquidity crunch. The protocol has seen its DAI supply drop from approximately 5 billion to 4.38 billion over the past week due to volatile crypto market conditions and increasing interest rates.

To mitigate the risk of a liquidity shortage, MakerDAO's governance has proposed a series of parameter changes. These include increasing the Dai Savings Rate (DSR) by 10 percentage points from 5% to 15%, raising Stability Fees across multiple vault types by 8.84 to 10.07 percentage points, and reducing the Governance Security Module (GSM) Delay from 48 to 16 hours.

The reduction in DAI supply is attributed to users minting and selling DAI for other assets amidst the current market volatility. While MakerDAO has sufficient collateral reserves, including approximately $1.1 billion in USDC deployed through Real-World Assets (RWA), daily redemptions are capped due to the nature of RWA vehicles, potentially leading to a temporary liquidity crunch.

The proposed parameter changes aim to make holding DAI more attractive by increasing the DSR, which should help alleviate downward pressure on the DAI price. Additionally, the increased Stability Fees across various vault types are intended to ensure the financial sustainability of the DSR increase and further secure the protocol.

MakerDAO's governance has also proposed decreasing the throughput time (ttl) of the USDC Peg Stability Module (PSM) from 24 to 12 hours to allow for greater potential inflow of stablecoin reserves. The GSM Delay reduction to 16 hours was chosen as a compromise to enable quick reactions to market conditions while mitigating potential risks from malicious spells.

The emergency measures are part of a predefined accelerated governance process outlined in MakerDAO's Atlas framework. The changes are intended to be temporary and will be reverted once market dynamics settle. BA Labs, a member of the Stability Advisory Council, has proposed these changes to the Stability Facilitator for implementation.

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