MakerDao’s Short (and Long) Term Fixes for Dai’s Broken Peg

  • As traders gobble up stablecoins for yield farming, demand for MakerDAO’s dai (DAI) has sent the stablecoin’s peg skyward.
  • The yield farming demand continues to put pressure on dai’s $1 peg, which has been under consistent stress since Black Thursday when market volatility sent dai’s price to $1.10.
  • MakerDAO’s community is debating some tweaks to its monetary policy to restore the peg, though Maker’s creator believes the only long-term solution is adding additional, varied collateral to the DAO.

Booming demand for stablecoins in DeFi’s yield farming landscape is breaking the peg for Ethereum’s only crypto-collateralized stablecoin. The Maker community is searching for a solution to drive the peg back down, but not everyone is sold that these solutions will work long-term.

MakerDAO’s dai, which uses ether, stablecoins and tokens as collateral to retain a $1 price point, is trading above its targeted peg. At time of publication, dai is trading at $1.04.

It’s not uncommon for dai to fluctuate above or below this price point. But the peg’s recent upwards drift, which continues a trend that began in March as market volatility led to a trading flight into stablecoins, is likely in response to growing demand for stablecoins in Ethereum’s blossoming yield farming market.

“The whole yield farming craze – and explosion in DeFi in general – has really impacted the peg a lot in the short run. The community responded by setting all rates to zero. The demand for dai is so extreme that even these zero rates don’t make a difference,” Rune Christensen, MakerDAO’s founder, told CoinDesk.

Exploding stablecoin demand (and supply)

The supply of stablecoins in DeFi lending markets has indeed exploded in 2020. On Uniswap, USDT, USDC and dai account for $340 million out of the protocol’s $1.43 billion in total value locked (TLV). DeFi’s largest lending pool, Aave, has stablecoins amounting to roughly $620 million of its overall $1.7 billion TLV.


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