Negative DSR / TRFM

Let’s clarify some terminology before replying:

DAI Supply: CDP holders mint DAI against collateral.
Stability Fee: Paid/Received by CDP holders
DAI Demand: DAI holders buy DAI to use as they see fit
DAI Savings Rate (DSR): Paid/Received by DAI holders

To increase the supply of DAI, you must decrease the stability fee to make minting new DAI more attractive. To decrease the demand for DAI, you must decrease the DSR, making it less attractive to hold DAI. Currently, the DSR is at zero and we cannot make it go negative, sadly.

If this all makes sense, can you please delete your posts so we don’t derail this discussion?

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I find it hard to believe any integration partner is going to be comfortable integrating dai into their platforms if users loose money using it. The theory may check out, from a practical stand point I just don’t see the idea feasible.


Right now DAI holders are stealing value that should be going to CDP holders. Market forces are not being allowed to work and the hopeless peg situation is the result. Sure we can ignore the problem but it wont be long before other synthetic platforms come and replace us

I understand your point but I think negative rates are not the solution because they kill adoption. At the end of the day there is no perfect solution, only compromises. What we as a community need to define is which compromises are we willing to give without killing the dai core value proposition. Do we want a semi descentralized pegged stable coin with adoption or a pure descentralized stable coin without it? As long as we keep onboarding assets in a fast manner with a special scope in real world assets I stand by the first option.


I personally tend to print some unsupported DAI. Overdraw the future.

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I would just focus short term on implementing a conservative PSM, fees should go to the surplus buffer. Once and if the peg is in control increase the base rate and start generating a war chest bigger than black thursday. Perhaps include an accrual into the base rate for such purpose.

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I agree with PSM. I’m just worried that if we still can’t make PEG reach $1 after adopting PSM, printing some unsupported DAI is also an option. Because USDT does not have 100% asset support, but it is still operating normally.

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I agree. And not only integration partners, but all the current permissionless DeFi apps don’t work correctly with ERC-20 tokens whose balance decreases over time. This was the cause of the Balancer pool drain.

The alternative of having Dai not be worth $1 loses all the Dai PMF, in my view (not to mention, no one wants a token whose USD value shrinks).

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Good points, the core issues I see with either the negative DSR or TRFM are the following:

Negative DSR:

  • Existing contracts could be broken by the unexpected behaviour.
  • Unpredictable gas pricing for transfers due to the negative DSR needing to be applied.


  • Breaks 1DAI = $1USD

I don’t have good answers for the negative DSR issue but on the topic of TRFM, we can ensure that 1DAI <= 1USD and that long-term it should likely be 1DAI == 1USD. We simply lower the target rate below 1 USD when DAI is above the peg and once the peg is restored, we can raise the target rate back towards 1 USD.

This means that if generally we do not have an excess demand for DAI, we will see DAI trade at 1USD with a positive DSR and SF. However, in extreme events, we are given a powerful tool to restore the peg and then recover our USP (unique selling point, 1DAI == 1USD) once the peg has been restored.

I’d also like to point out that DAI trading at $1.02 is also breaking the social contract around DAI and hurting our USP, so inaction is not an option.

What are the main differences between a negative DSR and the TRFM in this situation where dai is still pegged to $1? Aren’t they kind of equivalent?

The current DAI price of $1.02 shows that users are fine with:

  • the negative (mandatory) DSR of -2% and/or
  • 1 DAI backed by $0.98

They are buying an asset worth $1.00 for $1.02.


Those are not the target users, DAI is meant to be used as a medium of exchange and not as an investment vehicle.

When it comes to monetary policy I think we should look towards Central Banks at their ever growing and serious list of tools.

One of the biggest things that can drive people away from cash is ‘inflation’. While the FED has an inflation ‘goal’ or ‘target’ they have a lot of tools to manage markets (and they don’t even care what the price of a dollar is except as compared to the basket of items people buy - in the form of - inflation). How they manage this is with monetary policy. All driven by injecting or removing USD liquidity from various markets. The FED DOES NOT manage inflation by trying to control the value of the USD by directly interviening in markets as per something like the PSM. How they do control inflation is by directly interviening in the short and long term bond markets (by buying or selling bonds) and thereby driving $$ return rates. (While Maker for a time dictated rates this is becoming less so as secondary markets are growing larger and more mature) The other way is by directly injecting liquidity into various markets. For quite some time up until 2008 crisis what markets the FED would directly manipulate were limited, after 2008 and now covid they literally do and will manipulate a whole bunch of markets now. This is a tool that Maker simply has refused to consider. Creating a secondary reserve fund to be used in direct market operations to buy or sell assets to injection and remove DAI liquidity directly.

As mario rightly points out:

The real question is what does the larger community think DAI’s value proposition is? I honestly don’t have any sense of what that is because we have no mechanics to solicit opinion from the greater community. I have wanted for a long time a means for vault, DAI holders + system operators, developers etc. to be able to give feedback to Maker governance. I don’t know if I posted this publicly but the idea that we would pay people who fit certain conditions to answer surveys I think would honestly be useful for the protocol and as a means to guide the answers to the above question of what compromises Maker governance needs to make to satisfy the community as right now we are just guessing what is important based on a few vocal players. We need to hear the voices of thousands if not 10’s of thousands on these issues. Not 100.

  1. decentralized

  2. 1 DAI = 1.00 USD (on major exchanges)

Everything else in secondary and should be changed if #1 or #2 does not work well.

I don’t think anyone will mind occasional DAI price being ±0.5% off the peg (exchange fees are in that range), but being constantly under the peg or constantly above the peg is a problem. Some users will tolerate 1% off the peg, some maybe even 4% but it should not be considered a normal situation.

Mentioning all advantages/use cases of DAI vs USD (cash) would take too much space.

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I agree with the conclusions here that implementing negative rates/mandatory DSR by adjusting token balances is technically not workable because of integration concerns (most smart contracts do not work well with balances that change independently). However, negative effective interest rates can be achieved by Target Price adjustment, as proposed in this MIP:


Changing Dai to not be worth $1 breaks most of the existing PMF. We need a solution that keeps the $1 peg.

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There is no way to charge a fee to DAI holders without it resulting in DAI being effectively <$1. As such the lowest possible DSR will always be 0% if you want to keep 1DAI = $1 USP.

However, my proposal is to temporary break the 1DAI = $1 while DAI demand is excessive. As soon as the peg is restored you can begin raising the target rate of 1DAI back towards 1USD. So in the long-run we should see 1DAI = 1USD due to inflation making DAI unattractive to hold at 0% DSR.

Is temporarily breaking the USP, until we can scale the supply side of MakerDAO


Creating DAI from thin air is a bit too extreme. Maker is not Tether.

The central banks don’t print money, they swap cash for a safe collateral (gouv bonds).

It seems that USDC is not good collateral enough for the Maker community. I get the custody risk/centralization risk.

Isn’t buying cDAI and/or aDAI a good option if we trust those protocols (i.e. lending DAI on Compound/Aave)?? xDAI is DAI + interest rate + protocol risk. That’s the closest thing to a government bond. That way, we can control the DAI interest rate on Aave and Compound.

PS : It was already (but briefly) mentioned here (Governance and Risk Meeting: Ep. 99) as QE for DAI and here in the PS. I don’t think it’s that nuclear.

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Anything is better than allowing the peg to float upwards into the clouds. No PSM from the Foundation. Negative rates have too many technical problems vis a vis ERC-20 etc. That leaves us with a number of options, IMO:

  1. Subsidize Dai creation via a small MKR token issuance credited to borrowers. Note this approach has resulted in a large positive Dai interest rate on Compound.
  2. Allow the protocol to create and sell unbacked Dai in exchange for collateral such as ETH, MKR etc.
  3. Allow the protocol to create and sell unbacked Dai in exchange for collateral such as USDC.
  4. ???
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  1. MKR isn’t too popular among investors ATM
  2. Possibly
  3. No
  4. Pause ETH liquidations (we did that for all stablecoins!)