MakerDAO is to again increase the cost of borrowing dai by 4% to 11.5% for the fifth time in about two months.
This latest probable hike comes after suggestions there has been “little attributable impact from the previous Stability Fee increases.”
That’s despite the so called stability fee, interest rate, or the cost of borrowing, rising from 0.5% in February to 7.5%. They say:
“In February, the Stability Fee was increased twice, each time by 0.5%. In March, the Fee was raised by an additional 2%, and then by 4% two weeks later.
The impact of these combined increases was negligible, indicating that neither the target Stability Fee nor the incremental changes were appropriate.
In light of this, the MakerDAO community is moving forward with a Governance Poll to gauge sentiment for an additional Stability Fee increase.”
It remains somewhat strange that these considerable fee hikes have had no impact despite dai’s market cap remaining at roughly the same level with the dollar peg too remaining at sort of the level it usually has been (pictured above), although there has been a slight decrease recently.
What keeps this peg however is unclear because currently there is no incentive to hold dai, with some suggesting the peg is primarily kept by market making bots run by the Maker team.
The cost of 11.5% for a secured loan is far above traditional loans where credit is extended for far more cheaply because effectively they’re taking no risk.
With dai however it is a bit more complicated because first of all they hiked the loans after they “hooked” ethereans on the platform. Such ethereans might now be in a position, so they’d have to take into account other considerations on whether to close their position rather than just the interest rate.
In addition the lack of identification requirements, or any permission, or any forms, might make it more appealing.
On the other hand, a traditional loan based on crypto collateralization gives you actual dollars. While here you might have to go through a few steps, and thus fees, to convert the dai into bank USD, and then to convert that bank USD into dai to pay the loan.
These fees go to MKR holders with MKR holders deciding just how much the fee should be. Meaning there is clearly an incentive to hike it as much as the market can bear with competition very much needed to prevent potentially abusive monopoly like practices.
The entire Maker system is open source, so anyone can just copy paste all the code and launch it on the ethereum blockchain and call it perhaps something not as stupid as Maker Classic, but maybe something like Digit.
That should then give ethereans an option, rather than grumpily or otherwise being stuck with dai which is seems now almost daily demands more and more money.
As you can see in the chart above shared by some analysis, the collective cost has grown 10x from about 10,000 to 100,000 a month with it now likely to go to 200,000 a month.
That’s not accounting penalty fees for liquidation, which itself is some $250,000 for the first quarter of 2019.
Making it interesting in a way because this is now the very first profitable dapp with a clear business model, but on the other hand – as it is becoming so expensive – its competitive use case is becoming less clear.