MKR HODLers Keep Voting to Raise DAI Interest Rates

DAI lost its peg by a few pips, and MKR holders keep voting to raise borrowing rates (“stability fee”). The latest jump moved the interest rate up from 3.5% to 7.5%.

Not only is this a large jump, but it is especially notable since DAI had just been subject to a rate increase a few weeks ago (an increase of 3.5% on March 9).

Still, it makes sense. With MKR/DAI you can lock up ETH to borrow DAI, but you pay a fee for keeping the loan open. Raising the borrowing rate should get DAI out of circulation, because the increased rate will incentivize people to pay off their loan using DAI as opposed to paying the fee to keep it open. Meanwhile, taking DAI out of circulation should help bring the cost of the remaining DAI up due to supply/demand.

TIP: MKR is a democratic project, anyone can own MKR and using MKR can then vote on interest rate adjustments for DAI and other things. It is likely once the peg returns people will vote to lower interest rates. This is really no different than central bank policy, except with MRK the central bank is a democratic decentralized collective.