Let's Add DAI with DSR as Collateral on FiRM


This proposal seeks to introduce the first stablecoin market to FiRM: DAI. Using the Personal Collateral Escrow feature in FiRM, we can enable DAI deposits to take advantage of the yield available through the DAI Savings Rate, allowing users to enjoy borrowing at a high collateral factor for a well-known stablecoin.


About DAI

DAI is the leading decentralized stablecoin and created by MakerDAO and founded in 2015 by Rune Christensen. The concept behind DAI was to create a stablecoin that would be pegged to the US dollar while maintaining its decentralized nature and avoiding reliance on traditional financial institutions.

The DAI stablecoin maintains its value close to one U.S. dollar through a system of smart contracts and incentives. If the price of DAI deviates from the target price of $1.00, the MakerDAO system adjusts certain parameters, such as the Stability Fee and the Debt Ceiling, to encourage users to either mint or burn DAI, helping to restore its peg.

The DAI Savings Rate

The DAI Savings Rate (DSR) is a variable interest rate paid to users who deposit
their DAI stablecoins into the MakerDAO’s DSR smart contract. The DSR serves as an incentive - similar to a savings account - for DAI holders to deposit and hold their DAI which helps to stabilize DAI’s value and maintain its USD peg. DAI deposited in the DSR can be withdrawn at any time.

Maker has made expanding its portfolio of Real World Assets a priority and, in part due to relatively high interest rates on short-term U.S. government bonds and other portfolio holdings, Maker has accumulated $2.5 billion in RWAs that now represent 54% of its asset portfolio. This portfolio is expected to generate an annualized yield of ~4% this year and Maker is sharing this yield with DAI holders and to encourage greater participation in the DSR effort. Maker governance, recently increased the DAI savings rate (now 3.19% APR) and today there is ~$300MM in DSR TVL. NB: there is also a new governance proposal being considered which would raise the DSR to as high as 8%.

The DAI Savings Rate APR is determined by MakerDAO governance and can be adjusted based on prevailing market conditions and overall supply and demand dynamics.

Proposed Concept

Add DAI as collateral on FiRM while allowing depositors to also receive DSR interest.

Implementation on FiRM

Maker is a truly permissionless system enabling third party developers to access features like the DAI Savings Rate.

The proposed implementation allows a user to deposit naked DAI into a new DAI market on FiRM. That DAI is then immediately deposited into Maker’s Dai Savings Rate module where it will earn yield. Yield from DAI deposited into the DSR is continually generated for the user account. As the user’s Personal Collateral Escrow accrues yield, the borrower’s loan will become increasingly more collateralized, as long as DAI doesn’t negatively depeg from the USD.

Users may view their DSR balance at any time in FiRM, which calls a balance() function in the DAI Savings Rate contract. Note that the DSR does not issue a receipt token.

Withdrawing DAI from FiRM, with accrued DSR interest, functions like any other market on FiRM, however the Personal Collateral Escrow facilitates the call to the DAI Savings Rate contract’s exit function which enables the user’s DAI to be withdrawn to their wallet.

Market Opportunity

DAI is the largest decentralized stablecoin in the industry, with over $4.2 billion in circulation and the vast majority remaining on Ethereum mainnet https://defillama.com/stablecoin/dai
DSR TVL is relatively nascent at ~$307,000,000 but it is seeing recent growth now that Maker governance voted to increase the APR. We should expect DSR TVL to continue to rise for the foreseeable future as Maker seeks to address some softening in DAI’s circulation growth.

The core value proposition for DAI holders is to simply allow them to earn yield on their DAI while also using it as collateral for loans. Lending against DAI with DSR interest is not offered by other lenders today. This proposal allows DAI holders to borrow at fixed rates with a high collateral factor (potentially as high as 90%) while continuing to receive DSR yield. Moreover, there are no lockups and users may withdraw at any time.

Stablecoins as collateral for lending is not novel. Today, for example, Aave supports more than $500MM in stablecoin TVL as loan collateral. For Inverse, this marks a potentially lucrative foray into stablecoins as collateral for users who seek to make their stablecoin holdings more productive but with the high certainty/peace of mind of fixed borrowing costs.

In addition to “DeFi native” individual FiRM users, this proposal is also intended to appeal to DAO treasuries holding DAI who seek an alternative method for borrowing at fixed rates against their stablecoin reserves.

Risk Assessment:

The RWG analysis for DAI can be found here, which assigns an asset score of 9.98/10 for DAI, an exceptionally high score, with the following conclusions and parameter recommendations:

  1. Price Volatility: A high score in price volatility suggests that DAI price experiences minimal fluctuations or instability compared to the benchmark (wETH). This volatility indicates a lesser level of risk associated with DAI’s price movements.
  2. Token Distribution: A high score in token distribution indicates that DAI tokens are well distributed amongst numerous holders or addresses, potentially resulting in an even distribution of ownership. This distribution speaks to the asset’s decentralization, market stability, and deep liquidity.
  3. Market Capitalization: A high score in market capitalization suggests that DAI has a noteworthy overall market value relative to wETH. A high market capitalization score indicates that DAI has attained a considerable level of adoption or popularity.
  4. Trading Volume: A high score in trading volume indicates that DAI experiences high levels of trading activity compared to wETH. Higher trading volume generally implies deep liquidity and market interest, making it easier for investors to buy or sell DAI without significant price impact or slippage. This is also important in the context of liquidations.
  5. Project Fundamentals: A high score in project fundamentals suggests that DAI’s underlying project has strong attributes, such as an experienced team, solid technology, and a promising roadmap. This positive evaluation indicates that the project has a strong foundation and potential for success.
  6. Token Utility: A high score in token utility implies that DAI’s tokens have diverse use cases and functionality within the associated ecosystem. The higher the score, the more versatile and valuable the tokens are perceived to be. Token utility is essential as it reflects the demand and practical applications of DAI within its ecosystem.

Parameter Recommendations

Supply Ceiling 10,000,000 DOLA
Initial Fed Supply 5,000,000 DOLA
Daily Borrow Limit 1,000,000 DOLA
Firm Global Supply Ceiling 42,000,000 DOLA
Collateral Factor 90%
Liquidation Factor 50%
Liquidation Incentive 5%
Staleness Threshold 3650


Adding DAI provides a new category of loan collateral - stablecoins - as an option for FiRM users. FiRM is uniquely positioned to take advantage of the yield generated via the DAI DSR and therefore the growing TVL of DSI locked in DSR’s. The score for DAI provided by the RWG provides further confidence in the safety of this market.

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This is an exciting proposal as DAI is obviously the decentralized market leader and creating a way for DSR to be accessed while borrowing against collateral value is useful.

That said I wonder about the actual TVL this will drive with DBR price above the DSR.

Let’s imagine:
$100K deposit earning 3.19%, 85% ($85K) borrow costing 6% = net -1910
if the user wanted to optimize they could plow about $48K of this borrow into INV and stake earning them the DBR to cover their loan, say they put the remaining $37K back into their DSR PCE.
They’d net $4370 (on $137K) from the DSR, while having their borrow cost covered but they’d also have price exposure to INV.

Overall I’m for this proposal if the effort to implementation is low, but hoping the RWG Analysis has some analysis of the existing demand for this


Good comments. Existing demand for stables as collateral is included in the proposal above, though on Aave there is a supply APY whereas on FiRM there would (today) be no supply APY. Hypothesis we would be testing is that stablecoin holders are still willing to pay a net-positive borrow rate to borrow DOLA, especially at a high CF. This could vary by segment - with DeFi natives borrowing at a fixed rate in order to fund high-beta investment strategies, or DAO treasuries seeking to fund payroll in high-certainty manner with minimal downside risk to their DAO.

Also - worth mentioning that there is an active Maker governance effort underway led by Rune to introduce enhanced DSR with max APR of 8%.Request for GOV12.1.2 edit to the stability scope to quickly implement Enhanced DSR - Maker Core - The Maker Forum which appears on track to go to a vote in August.

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Update: added RWG analysis

Not a big fan of this. Having DAI as collateral for DOLA makes DOLA backed by DAI underlying and thus RWA (USDC namely and the other RWA backing DAI which are the majority now).

One of the value propositions of DOLA for me is that it could be a truly decentralized stablecoin backed mainly by decentralized assets (This is of course not the case now with the AMM fed actually backing DOLA with USDC but this could be mitigated with a new solution later and if FIRM where to compose the bulk of DOLA backing at some point).

The analysis of the DAI backing seems light in the risk report of DAI.

I guess it this brings a lot of value for DOLA for a low integration effort it could be worth it, but the long-term goal of inverse should not be to have its stablecoin primarily backed by other stable and/or RWA.


The RWG risk assessment has been updated to reflect a provisional cap on stables as a % of collateral on FiRM - 25% for now. We can revisit this cap and lower/raise in future proposals. The general sentiment in your comment is shared by a number of people I’ve spoke with in the DAO though, in my discussions, simultaneously the opportunity for yield bearings stables as collateral is attractive and growing (e.g. Frax v3 roadmap) and we are interested in near term options for diversifying collateral options. General consensus is to press forward with this proposal as a first foray with stables as collateral.


My thought is to go full court press here, onboard DAI, onboard other assets as well. I like an overall marketshare cap on total “centralized” stables.

All this said I am likely less worried about risks surrounding DAI. My main concern would be to have some thought out steps to increase liquidity, ie maybe a DAI/DOLA market, to provide a place to put borrowed DOLA that benefits liquidity while reducing the increases in velocity that will come from more DOLA circulating

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Update: updated parameter recs to reflect final proposal on govmills

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