Aave Launches sDAI Pool As MakerDAO Weighs Reducing Yields

Aave v3, the leading decentralized lending protocol, enabled support for yield-bearing DAI as collateral on Aug. 28.

Aave’s Marc Zeller noted that sDAI’s yields enable delta-neutral lending on the protocol. sDAI tokens represent DAI stablecoins deposited in MakerDAO’s DAI Savings Rate (DSR) module.

Users have already deposited $37M worth of sDAI onto Aave v3 less than 24 hours after the pool’s launch.

The news comes after MakerDAO hiked DSR yields to 8% from 3.3% on Aug. 6 in a bid to drive up adoption of DAI through Spark Protocol — a DAI-focussed fork of Aave v3 launched by prominent MakerDAO community members in May that offers depositors access to the DSR.

The increase was an immediate success, adding more than $1B to the DSR’s total value locked (TVL) and maxing out Spark’s debt ceiling by Aug. 19. However, the spike in TVL also triggered a reduction in DSR yields from 8% to 5.8%.

The DSR’s TVL slumped from nearly $1.5B to $1.12B after the rate was reduced and has since rebounded to $1.26B, according to Dune Analytics.

MakerDAO Founder Proposes Rate Overhaul

Rune Christensen, MakerDAO’s controversial co-founder, proposed reducing the DSR’s maximum yield to around 5% just 48 hours after yields increased to 8%.

Christensen argued that “massive” whales disproportionately benefited from the rate hike through recursive lending, crowding out the regular DAI users whom Maker had hoped would benefit from higher DSR yields.

“Overall, I think we can consider the experiment a success, but I want to propose some changes aimed to ensure that the EDSR benefits regular DAI holders rather than disproportionately benefit ETH whales,” Christensen said.

Christensen proposed limiting DSR yields to 5% alongside a corresponding increase in borrowing rates across Spark Protocol and Maker’s vaults (excluding its ETH vaults) to prevent whales from engaging in recursive lending.

Christensen also suggested introducing a “retroactive subDAO farming airdrop” to reward early Spark Protocol users and offset the blow of increased borrow rates. Christensen said he will publish a separate proposal outlining further details regarding the SPK airdrop at a later date.