Dai to Pass Tether by Paying Double

Chapter I

Lending Platforms pay 8% Interest on Dai and Tether

The least you could do with your stablecoins; Dai, Tether, etc. is locking some up in lending platforms like Compound, Nexo, etc. and earn yourself some handsome interest.

They work like traditional banks. They receive deposits in stablecoins and then lend out what they gain. Except for a small part of the bank’s revenue, whatever interest the borrowers pay, forms the interest that the depositors receive.

There is high demand for loans in these lending platforms, mostly because they typically do not require a credit assessment, KYC, or other hassles. That is mostly because the loans are risk free. They erase the risk by receiving multiple times the value of the loans as collateral from borrowers in Bitcoins, or other crypto-assets.

This huge demand enables them to ask for high interest rates from borrowers and promise attractive interest rates to depositors. As we are talking, you can practically buy some Dai or Tether and lock them up lending platforms like Nexo or Compound. They promise approximately 8% yearly interest, no questions asked.

Chapter II

Maker offers 8% Saving Rates for Dai (without lending!)

Maker plans to announce multi-collateral Dai with new features in Fall and this is good news for everyone. Dai, which is currently created by locking Ether as collateral, will turn into Dai and supports other crypto-assets as collateral.

But, what’s more interesting than accepting multiple assets as collateral for Dai, is the Dai Saving Rates. This feature enables holders to enjoy an interest just by locking their Dai in DSR contract.

Here’s what Maker has to say about DSR:

“A person who holds Dai can lock and unlock Dai into a DSR contract at any time. Once locked into the DSR contract, Dai continuously accrues, based on a global system variable called the DSR.“

But, how are they going to pay for all that?

They plan to pay for that with stability fees they receive from users when they create Dai by locking Ether. According to a blog post from Maker, if they ask for a 3% stability fee, they’ll pay 2% interest to savings in DSR. That means, if stability fees remain still and don’t change the current 12.5%, DSR can provide about 8% interest for Dai holders.

That is 8% interest without even lending your money.

Chapter III

Dai could pay 2X and pass Tether

A smart move for Maker would be integrating with well-known lending platforms in order to lend the funds in DSR contract and double the interest rates for Dai holders.

Apparently, stability fees are the only sources of revenue for paying saving rates. Maker’s decision to use the Dai in DSR contract to provide loans to borrowers adds another stream of revenue for paying interest to Dai holders.

Potential Dai holders interest = Interests out of stability fee + Interests paid by Dai borrowers = 8% + 8% = 16%

The interest rate is the most important factor in choosing your preferred stablecoin. So the creation of a lending platform by Maker and doubling the interest rate for Dai holders will surely convince a big chunk Tether’s market to migrate to Dai’s in order to double the interest.