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How to achieve up to 8% annualized returns using MakerDAO's EDSR.

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Simply put, there may only be one chance for an 8% opportunity.

Original author: Cook Sun

This article will elaborate on the sources of returns with an annualized interest rate of 8%, as well as what DSR and EDSR are. As MakerDAO does not have an official deposit page, we will also introduce 4 locations and steps to implement $DAI deposits.

First, let's do a concept introduction: MakerDAO's DSR, which stands for Dai Savings Rate, can be simply understood as the deposit interest rate of the stablecoin $DAI. By depositing $DAI into the savings contract, you can automatically earn profits, similar to a real-world current deposit account.

The 8% interest rate proposed this time is strictly speaking a new mechanism called EDSR - Enhanced Dai Savings Rate, which is an enhanced version of the current interest rate model.

First, let's talk about the source of income. We all know that an 8% yield has already exceeded the returns of US Treasury bonds and other high-quality investment targets, so is it a real return?

First of all, it is a temporary interest rate that uses a tiered calculation. EDSR (Enhanced Dai Savings Rate) is a measure to temporarily increase user deposit motivation when the DSR utilization rate is low. EDSR is determined based on the utilization rate of DSR and gradually decreases as the utilization rate increases.

What is the utilization rate of DSR?

In simple terms, it means the ratio of the amount of DAI deposited into DSR to the total amount. In other words, as more DAI is deposited into DSR, the interest rate will gradually decrease.

As shown in the figure below, when the utilization rate is less than 20%, the interest rate is 8%. After the utilization rate exceeds 50%, the interest rate will decrease to 4.16%.

At the same time, it should be noted that EDSR is a one-time, one-way temporary mechanism, which means that EDSR can only decrease over time, even if DSR utilization decreases, it cannot increase again.

Simply put, 8% may only have this one chance.

After the above analysis, we have a basic understanding of 8% of the income source. The principle is that if MakerDAO uses 100% of its stablecoin assets to buy RWA, less than 20% of $DAI will receive income, and the overall yield will overflow, which constitutes the source of "8% > national bond yield". (The specific real data needs to be accurately calculated here) This is equivalent to reducing the income of DAO itself and distributing it to the depositors of $DAI.

How to operate? - DeFiSaver (Smart Saving)

https://app.defisaver.com/smart-savings

- Select Maker DSR in Smart Saving;

- Enter the deposit amount in Supply.

- The estimated earnings for each week/month/year are displayed on the right side.

How to operate? - DeFiSaver (Spark)

https://app.defisaver.com/spark

- Switch the currency to $DAI in the Supply window of Spark;

- Converting DAI to sDAI allows for its use as collateral for loans.

- Spark is the lending protocol under MakerDAO, and sDAI is equivalent to aDAI in Aave. Here, it allows borrowing while earning the deposit interest rate of DSR.