Multi-Collateral Dai: What to do for the upcoming upgrade

How to prepare for the upgrade — beginning Monday the 18th — and what to expect from the new multi-collateral Dai in your favorite non-custodial wallet.

imToken
imToken
Nov 14, 2019 · 5 min read

MakerDAO will officially release Multi-Collateral Dai on November 18th. A milestone in the stablecoin field.

With this upgrade, Dai will support more collateral types and the long-awaited Dai Savings Rate (DSR). The collateral types promises to increase the stability of Dai while making various DeFi applications simpler and more economical.

How to prepare for the new Dai?

On November 18th, 3:00 PM UTC (i.e. 11:00 UTC+8), your Dai tokens will rename to Sai. From that time on, the token symbol Dai will be used for the new Multi-Collateral Dai.

You should:

  1. Use migrate.makerdao.com — i.e. MakerDAO Migrate in your imToken’s Browser — to exchange your Sai to Dai
  2. If your Dai exists in a third-party application such as Compound, you need to extract it before you can migrate

After migrating, you can receive interest on your Dai by locking your Dai into the Dai Savings Rate contract in your imToken Browser on the Oasis DApp.

The old Dai is now ‘Sai’

Dai (now: Sai) is the first decentralized stablecoin issued on Ethereum. The single collateral Dai is issued by over-collateralized Ethereum, anchoring 1 Dai to a value around 1 US dollar.

The core mechanism incentivizes creation and destruction of outstanding Dai by adjusting the rate with which Dai is borrowed.

However, the single-collateral Dai (Sai) depends on the price of ETH. If there is a black swan event in the market, the short-term sharp decline in ETH price may affect the stability of Dai.

Introducing multi-collateral Dai

Multi-Collateral Dai (now: Dai) is different from Dai (now: Sai) in the following two aspects.

  1. Multi-Collateral Dai supports a wider range of crypto as collateral, hence the name
  2. Multi-Collateral Dai adds a Dai Savings Rate (DSR): A way to receive interest on Dai that is locked in a smart contract
  3. Multi-Collateral Dai uses Auctions and Keepers to prevent both debt and surplus from building beyond certain points

Using more collateral types aims to increase the stability of Dai, and helps to offer higher supply. Oversimplified, each collateral token has different price swings, which makes the average more stable than that of just one collateral type.

The first collateral types will be ETH and BAT, and new collateral type will be voted in through the MakerDAO governance.

By adding the Dai Savings Rate (DSR),the MakerDAO team is adding another governance tool to adjust the behavior of Dai holder. As DSR is interest that Dai holders get by locking Dai, the DSR can influence the price of Dai from the demand side in two ways:

  • If the market price of Dai is below 1 USD, the Dai Savings Rate will increase. This boosts demand, which should increase the market price of Dai up towards the 1 USD target price.
  • If the market price of Dai is above 1 USD, the Dai Savings Rate will decrease. This stifles demand, which should reduce the market price of Dai down towards the 1 USD target price.

In addition, the single-collateral Dai uses a clearing mechanism to sell collateral at a discount. For better price discovery, the multi-collateral Dai will use an auction clearing mechanism, thereby reducing the risk of the collateral falling sharply in a short period of time.

What you can do with the new Dai

1. Lock Dai to Obtain Interest

Any holder can lock Dai into the Dai Savings Rate contract and receive interest.

You can unlock Dai and receive the interest earned from the deposit rate contract at any time. For example, deposit 100 Dai at a deposit rate of 5% per year and withdraw 105 Dai after 12 months.

2. Deposit into the lending market

Currently, the DeFi market offers a series of decentralized lending applications. For example, both Compound and Dharma support Dai, and users can deposit Dai into such lending applications to earn interest. At present, Compound locks more than 21 million Dai, with an annualized income of 4.98%. The annualized revenue of Compound will change according to market supply and demand.

3. Leverage Your Collateral

There are a couple of tools, such as dydx, that make it easy to invest into ETH with Dai you lend for ETH. However, leveraged trading is a high risk, so please be cautious.

See you on November 18! 😉

imToken

Digital Assets Within Your Control

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Digital Assets Within Your Control

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