This month saw an almost $1 billion increase in DAI’s market capitalization following its reward rates boost to as high as 8%. The obvious attraction being these eye-catching figures swiftly reinvigorated interest among crypto investors. The overall market value of DAI touched the $5 billion mark this month, the highest since this April. The spike in interest also had a profound effect on the decentralized finance (DeFi) lending platform, Spark, leveraging Maker’s credit facility, as it witnessed assets growth nearly ten times in the past month to $430 million.
However, the ostensibly riveting snapshot isn’t devoid of cost implications. The increased payout, while attracting more investors into the fold, has gnawed into the profits of its issuer, Maker. It was an eventuality predicted by Kunal Goel, an analyst at Messari who opined that the rewards scheme would swell the protocol’s interest expense and dampen profit expectations.
Adopting a proactive measure, Maker capped the maximum rate at 5%, aiming to safeguard its profit projections while continuing to offer competitive rates. This adjustment was not without repercussions as larger investors began to shed DAI, including Justin Sun-controlled addresses which redeemed approximately $200 million worth of tokens
Whilst the enhanced payout strategy embarked by Maker spawned growth, questions much akin to a coin’s obverse and reverse persist. One side illuminates the sudden growth geyser, propelled by the generous interest rate offerings, noticeable not only in DAI’s surge but also in Spark’s substantial spike in total assets. On the flip side, the sustainability of this growth attracts curiosity.
Will the newly-added users linger or simply vanish alongside decreasing rates? Is it possible for this strategy to maintain the enthusiastic momentum or will the rate cap distort the recent inflow? Such enigmas continue to fuel the cryptic essence of the crypto market.
As the adage says, “there is no such thing as a ‘free lunch'”. A growth strategy’s sustainability is determined by its balance, offering laurels that lure in the crowd while ensuring it doesn’t cannibalize profits. Time, the silent and most impartial observer, will reveal the truth behind the dichotomy of these rising rates and the sustainability of such enticing rewards in the long run.