‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg

‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg


Takeaways:

As traders gobble up stablecoins for yield farming, demand for MakerDAO’s dai (DAI) has sent the stablecoin’s peg skyward.

  • The yield farming demand continues to put pressure on dai’s $1 peg, which has been under consistent stress since Black Thursday when market volatility sent dai’s price to $1.10.
  • MakerDAO’s community is debating some tweaks to its monetary policy to restore the peg, though Maker’s creator believes the only long-term solution is adding additional, varied collateral to the DAO.
  • Booming demand for stablecoins in DeFi’s yield farming landscape is breaking the peg for Ethereum’s only crypto-collateralized stablecoin. The Maker community is searching for a solution to drive the peg back down, but not everyone is sold that these solutions will work long-term.

    MakerDAO’s dai, which uses ether, stablecoins and tokens as collateral to retain a $1 price point, is trading above its targeted peg. At time of publication, dai is trading at $1.04.

    It’s not uncommon for dai to fluctuate above or below this price point. But the peg’s recent upwards drift, which continues a trend that began in March as market volatility led to a trading flight into stablecoins, is likely in response to growing demand for stablecoins in Ethereum’s blossoming yield farming market. 

    “The whole yield farming craze – and explosion in DeFi in general – has really impacted the peg a lot in the short run. The community responded by setting all rates to zero. The demand for dai is so

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