DAI-ling back in: Breaking down DAI’s circulating supply

DAI -0.066% ’s supply has been growing at a rapid pace since the beginning of March. Its supply climbed from 4.42 billion on March 9 to 5.48 billion on May 12, a 24% jump in just over two months.

From October 2023 into March, DAI’s supply was on more of a downward trend, with two particularly large drops at the end of January and the start of March.

At its core, there are really two components to DAI’s circulating supply: The actual outstanding supply dictated by mints and burns on the network and the supply deposited into the DSR , or the Dai Savings Rate. Currently, the way depositing into the DSR works is that DAI itself is actually burned to mint SavingsDAI, or sDAI, as you can see in this  transaction. And then on the converse, when you withdraw from the DSR, DAI is  minted , and you get back the amount of DAI you deposited plus the interest you accrued.

The raw circulating supply of DAI has been on a downward trend for a while, primarily because people are burning DAI to deposit into the DSR, which nets a burn, but that DAI still exists in the form of sDAI.

The DSR has been largely popular. MakerDAO raised the rate to 1% at the start of 2023, which resulted in over 35 million  DAI being deposited within a month. The protocol later raised the savings rate to  3.3% and then to 8%  to remain competitive with the current interest rates. That 8% raise happened in August 2023 and corresponded with the surge then that took DAI’s supply from 4.44 billion to 5.47 billion in the late summer.

That jump caused by a DSR hike was really the first notable increase in DAI’s supply since March 2023, when DAI’s supply surged in the wake of the USDC +0.089% depeg. Other than that, DAI has been struggling since the fallout of UST, which shed a negative light on crypto-backed stablecoins.

But the 8% interest could not last forever, and within just two days over 20% of DAI was parked in the DSR, triggering an automatic drop to 5.8%, which was still sizable. Maker MKR -0.79% ’s founder  proposed dropping the rate to 5% to allow the DSR to be higher for longer, which went into effect.

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While the DSR at 5% is still pretty significant, pressure has been emerging in the form of other yield opportunities, like USDe, which has been steadily gaining market share in the stablecoin space, offering a  15.9% yield on its staked offering.

It seems the sizable drop in March pushed MakerDAO into action as the protocol made changes to its fee mechanism and also hiked the DSR to 15% to help alleviate sell pressure.

It looks like this change, which went into effect March 9, is the cause of the recent run-up, as users rush to tap into that high yield.

This is an excerpt from  The Block's Data Insights newsletter . Dig into the numbers making up the industry’s most thought-provoking trends.