What is going on with DSR utilization?

Can anyone explain why the DSR which is at 0% has over 50 million Dai in it currently? Last I had looked closely at the DSR it was at just over 13 million and was trending down. Compound drama does not explain this as far as I can tell, so what is going on? Why is so much Dai being put in the DSR at 0%? I do not personally have an explanation that fits this behavior.

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Almost 60 million now…

cDAI is a claim on DAI in the DSR.

Ah, so it is Compound. They are essentially paying the DSR for us then. Parking Dai in the DSR and paying interest (via COMP token) instead of it coming from MakerDAO.

What happens if the 520+ million in borrowed Dai on compound (which only is actually 59 million Dai and leveraged) starts raising in price? I am guessing a buying frenzy of Dai to get out of these positions creating more upwards pressure on the Dai price and these feed themselves until everyone is out of their leveraged loans or gets liquidated on Compound.

It depends on the details and structure or the Compound system I suppose… Do you understand how that works because I certainly do not and could use some hand holding as to why any of this is good business on their part.

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Most of that DAI isn’t really borrowed. On Compound, you can supply and borrow the same token. You can’t do this in the regular GUI, but you can by accessing the smart contracts directly.

If the value of COMP goes down and many people want to exit their DAI position on Compound, what happens is that, on balance, people will want to get rid of their DAI. So the DAI price is likely to go down, not up.

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Hello @FourthStreet welcome to the forums btw.

Look at the unwind on ZRX and BAT. BAT in particular didn’t do anything. My guess is these folks doing the levering are basically doing it in a pricing risk neutral way. The biggest issue I saw in these was the idea that the extra interest in the token of choice will need to be paid at some point with the COMP profits.

I expected a price bump on ZRX as the interest to be paid to clear the final positions would need our whales to start purchasing ZRX. The next one that should be larger (perhaps 10-20M BAT) that I am still waiting to see started. The last one here will be DAI but it should be pretty easy to fill that in a lot of different ways.

These whales are not entirely stupid here but there are multiple ones all looking to close the same interest deficits at compound. Here with a interest difference of <1% the amount of DAI they will need to close will be tiny compared to the position unwinds.

I am a bit more concerned with hearing that a number of projects are dumping DAI in favor of other stablecoins that hold a better PEG to $1 so it would be nice to finally lay to rest somewhat the DAI PEG using something like a PSM approach.

Right now it looks like the DSR is entirely funded by compound at this point. It is just smart contracts trying to do the right thing here since if there was any DSR return rate having that 57M there would juice returns on compound for DAI.