On October 28th, MakerDAO officially announced that the Dai stabilization fee rate was reduced to 5.5%. This proposal was put forward in the conference call on October 24th and was implemented with 45,317.80 MKR support votes as of October 28th.
According to Odaily statistics, since 2019, MakerDAO has voted 22 times on the adjustment of the stable fee rate. The data changes as follows:
The adjustment of the fee rate was originally used to control the ratio of Dai to the US dollar in order to keep it at a 1:1 state. For example, when the price of mortgage assets fluctuates, there will be more leverage players, and they will mortgage ETH or other digital assets to lend Dai. At this time, the supply of Dai will increase, and the peg between Dai and the US dollar will no longer be in a stable 1:1 relationship. At this time, the community will propose to increase the stable rate (borrowing interest rate) and increase the borrowing cost of Dai, thereby limiting the supply of Dai and maintaining a 1:1 peg between Dai and the US dollar. When the borrowing cost continues to rise, the supply of Dai will decrease. If it is too small, the 1:1 anchoring relationship between Dai and the U.S. dollar will not be established. At this time, the community will reduce the stability rate, reduce the borrowing cost of Dai, and increase the supply. This process is similar to the Fed raising and lowering rates.
Here MakerDAO's stable fee rate is actually equivalent to the borrowing interest. When the borrowing interest is lower than the lending interest of another platform, there will be an opportunity for arbitrage.
For example, currently MakerDAO’s Dai lending interest rate is 5.5%, while Compound v1’s lending rate is 14.35%, Compound v2’s lending rate is 11.70%, dydx’s lending rate is 11.49%, and there are three other platforms: Fulcrum, Nuo, The lending rate of InstaDApp is also higher than that of MakerDAO. As shown below:
It should be noted that MakerDAO's stablecoin model can only be borrowed but not lent, while other lending platforms are a matching model, which completes lending by matching lenders and borrowers.
Therefore, the following operations can be performed between different platforms to achieve the purpose of arbitrage:
Of course, in addition to arbitrage between the same asset, it can also be carried out between different assets. For example, after lending Dai on Maker, it can be exchanged for other assets such as USDC or GUSD, and then lend on other platforms. However, judging from the data given by the loanscan platform, Dai is a relatively mainstream lending asset, and almost every platform supports it.
During the operation, there will be the following risks that need to be paid attention to:
MakerDAO's over-collateralization requirements: In order to prevent insolvency, the MakerDAO system requires a mortgage at an initial mortgage rate of 150%. In addition, as long as the mortgage rate is lower than 150%, CDP will be at risk. In addition, since the Ethereum deposited in the CDP account will not be returned with interest, strengthening the protection of collateral prices will reduce the expectation of returns.
Due to the problem of the MKR voting mechanism, the voting right to stabilize the fee rate is in the hands of "big whales", so there is a great risk of rate manipulation. For example, in the vote to reduce the stability fee rate, a giant whale holding 41,900 MKR appeared, accounting for 97% of the voting rights, increasing the number of votes from 2,489 to 44,539 in one fell swoop.
Since some links in the decentralized lending platform are carried out by paying "miner fees", all miner fee rates need to be considered.
In addition, because the rate change itself has no fixed frequency and upper and lower limits, the systemic risk caused by instability is very high. For example, this year's stable rate fluctuates from 20.5% to 0.5%, and the most frequent fluctuations occurred in July, with stable rate changes occurring for 3 consecutive days.
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