The clash of the Stablecoin Titans
MakerDAO’s DSR (DAI Savings Rate) has provided the best “blue-chip” source of on chain yield on stablecoin exposure for quite some time but with the launch of Ethena, that all began to change somewhat. While there are nuances in terms of risk profile, the emergence of sUSDe from Ethena has certainly posed a viable alternative for the on-chain yield seekers. If you are not versed in Ethena or sUSDE, check out this Weekly we wrote a while back.
Having launched publicly on Monday the 19th of February, within less than a month of being openly and publicly available, USDe (Ethena’s stablecoin) supply has rapidly approached over $1bn:
With the staked version of USDe (sUSDe) paying a very high yield (currently in excess of 60%), it is no surprise that we have seen consistent inflows over time:
Meanwhile, DAI supply has been down and sDAI supply has been largely flat over the same period:
The emergence of a large yield differential between sDAI and sUSDe and the large difference in the borrow rate for DAI vs the yield on sUSDe has led to both a flow of capital from sDAI to sUSDe and a carry strategy whereby participants can borrow DAI at a lower rate to deposit into sUSDe.
The mounting DAI sell pressure created from these two driving factors (predominantly the below market DAI borrow rates) has led to large outflows from the Peg Stability Module over the past couple of weeks. In order to maintain peg, DAI can be bought at below $1 and redeemed for USDC reserves in this module. In a relatively impromptu response to attempt to slow down outflows from the PSM, Maker elected to jack up DAI borrow rates and the yield which can be earned on DAI in the DAI Savings Rate or DSR:
So far, looking at PSM and both DAI and sDAI supply, this measure has worked well so far by creating an incentive for borrowers to repay DAI borrows given the higher DAI borrow rate and encouraging holding DAI given the higher DSR rate.
We will be watching the on-chain money market closely and keeping you updated with the latest... follow along for yourself with the following parsec.fi explorer layouts:
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