We Should be Lowering the Base Rate

The past few weeks have seen the weekly Base Rate poll continue to vote in 0% while the peg remains above $1. This is problematic because it undermines the core promise of Maker in exchange for compensating MKR holders for risk. I am urging MKR holders to consider voting in a negative Base Rate to help restore the peg to $1.

As a reminder, voting in a negative Base Rate does NOT imply that any Stability Fee will end up negative. The Stability Fees are defined as:

Stability Fee = max(Base Rate + Risk Premium, 0%)

For example, if we vote in a Base Rate of -1% then ETH-A’s Stability Fee will be:

ETH-A Stability Fee = max(Base Rate + ETH-A Risk Premium, 0%)
= max(-1% + 0%, 0%)
= max(-1%, 0%)
= 0%

since 0% is greater than -1%.

There is nothing special about a Base Rate of 0% other then it is the point where MKR holders start subsidizing the risk premiums, but we are already doing that with ETH-A anyways.

If your concern is to be compensated for the collateral risk exposure, then I urge you to reconsider as growth and trust of the protocol is of paramount importance at this stage. I don’t believe it is worthwhile to be concerned about earning a 1-4% risk return on the current Dai supply when we could be looking at billions (trillions?) of Dai being issued over the next decade. It is very common for start up company shareholder’s to be tolerant of all sorts of risk at the beginning because the dominant risk is almost always that the product will fail altogether. I know we are a DAO, but I think the analogy works.

Anyways, this was a bit of a rant. I hope I changed some minds, but if not please explain why you want to keep the Base Rate at 0%.


Some 38K voting for 0% (no change) so far

For those who haven’t voted yet —> Base rate voting ends tomorrow


Please implement PSM to solve the exchange rate problem instead of negative interest rates.

Thank you for coming around to my side :slight_smile:

To be clear, I am not advocating for negative interest rates. I am advocating for a negative Base Rate which does NOT imply negative Stability Fees.

“Dai is a decentralized, unbiased, collateral-backed cryptocurrency soft-pegged to the US Dollar. Resistant to hyperinflation due to its low volatility, Dai offers economic freedom and opportunity to anyone, anywhere.” that’s in the first paragraph from the MakerDAO whitepaper

That’s a promise made by MKR holders to the world. It’s currently not fulfilled. If the world want broken promises they can go to USDT.

Yield farming is stretching the peg. The current “yielding” collateral is USDC and it is used by COMP farmers. USDC will be the more impacted by a negative base rate. It would mean giving those farmers more yield. Yet, this is the way. We need more farmers borrowing DAI on USDC directly or, more likely, more people arbitraging between USDC vault and compound/aave DAI supply.

COMP farming ensure the DAI utilization on Compound will be above 75% usage for next months leading to a minimum 2.72% supply interest rate. If the stability fee from USDC goes below that (effects will start before), it’s an almost risk free arbitrage.

If the supply interest rate on money markets stay higher than other stablecoins for a foreseeable future, the peg will continue to be broken. No issue buying DAI at 1.03 if I can lend at 9% versus 2% using USDC. Interest rates have an impact on exchange rates.

At the current stage, MKR holder have a earning yield of almost nothing (0.4% if I remember correctly). that’s not different from 0%. The system surplus is thin anyway.

What matter is being trusted on our promises. Yield farming with DAI is a blessing, every farmer is exposed to our product. Let’s show us we deserve to serve them in the future.

0.1% SF on the amount of DAI in 10 years will be mush more than anything missed this year. But being an alt-stablecoin will not earn much that’s for sure.

I completely get the PSM argument. I want that too. I said (and still believe) that using stablecoin as collateral is crazy. But the whitepaper doesn’t promise MakerDAO to be clean and perfect, it promises the peg with the dollar and low volatility. There is one easy tool to do that => base rate below 0 (notice that stability fees will not go below 0 in any case).


Playing devil’s advocate a little here…

If we make a negative base rate, and lets say all collateral is 0% AND the PEG is still elevated, would the system in a better position than it currently is in?

I’m interested to see where the new DAI has gone post YFI mining… I presume more yield farming and not by selling on the open market. As long as yield mining is taking up the lion’s share of the DAI, I’m not sure data would support decreasing rates = improved PEG.

Maybe we just need to blow past the MAX amount of capital available to yield farm before we will see stability

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Hi, how would that play out? Negative rate for DSR deposits? What would be the difference between that and increasing the SF? Aside from the fact that I may be extrapolating, users are minting dai to deposit in compound mainly so the cost would be the same for them through a negative dsr or a positive sf. I’m not comfortable with the negative repercusions it may have for the integration part of dai to have a negative dsr (all this if I understood you correctly, please correct me otherwise)

Negative Base Rate does not imply a negative Stability Fee. We can lower the Base Rate below 0% and still keep overall rates >= 0%. Please see the example above to see why this is the case.

Ok understood, nothing to do with DSR. We can run at an overall rate of 0% but if the dai minted goes to comp farming instead of being sold in the market how is it going to impact the peg?

Satisfying demand via minting instead of market buys will alleviate upward pressure on the peg.

It is already cheaper to mint than market buy.

Edit: But we can make it even cheaper, worth a shot for two weeks to see if we have any significant impact

Would allow us to adjust risk premiums while collateral rates are underwater


This would do nothing to help create more DAI since all the ceilings are maxed out at the current rates anyway.The fees are not what is limiting the correction of the peg, the debt ceilings are.


There is 15M$ left in the ETH pool. USDC was maxed out in minutes after this message (around 30M$). Might be a coincidence, but maybe not. The interest spread between DAI and USDC on Compound has decreased as a consequence.

DC will be increased significantly this evening. Let’s see how fast they are filled.

I have a (stupid) clarifying question. Let’s say the Base Rate is set to -1%. In practice what does this mean for the user? They can mint more Dai with the same amount of collateral (if so how much more can be minted?) or do we somehow compensate them in Dai when they close their vault (opposite of a Stability fee?)

Total stability fee is calculated as max(0, risk premium + base rate), so no stability fees will be below zero, this just means we are subsidizing the the stability fees of some of our riskier assets. usdc-a, usdc-b, mana, wbtc, knc, zrx then would all have lower stability fees than they currently do, while eth and bat would remain at 0%

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Slight correction - that should be max and not min.


oof, you’re right, fixed


Alright you sold me. I’m late to the conversation as always, but I buy that we have a real need to boost minting even more to see if it satisfies demand.

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