Integration set to enhance and further stabilize DAI’s low borrowing costs and maintain MakerDAO’s position as most efficient liquidity provider in the DeFi space
MakerDAO, the longest-standing DeFi lending protocol and creator of DAI, the original, decentralized stablecoin, has integrated its DAI Direct Deposit Module (D3M) with Compound, an Ethereum-based permissionless money market protocol. D3M enables the interaction of Maker’s credit-facility engine with third-party lending pools, allowing MakerDAO to enforce a maximum variable borrow rate for the DAI market on these lending protocols. MakerDAO’s Risk team expects to generate an additional 1.8 million DAI in annualized revenue for the Maker protocol through the integration.
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With MakerDAO’s community overwhelmingly approving D3M’s onboarding to Compound, it becomes the second protocol, after Aave, to integrate with D3M, positioning DAI as the most liquid and convenient stablecoin to borrow across multiple lending markets. D3M is a unique Maker Vault that generates and deposits freshly minted DAI to Compound’s lending market. Compound users benefit from a fixed, reliable DAI borrowing rate, which previously would be subject to highly fluctuating interest rates due to the volatile nature of DeFi.
Nadia Alvarez, Head of MakerGrowth, commented: “The integration of D3M with lending protocols such as Compound offers a widely available decentralized and transparent method of alleviating interest rates that have recently spiked due to high demand. This integration is in line with MakerDAO’s aim to offer a wholesale line of credit, and high liquidity to borrowers of all sizes, up to the very largest institutions. The module provides MakerDAO with the opportunity to control DAI supply on external lending platforms and furthers our claim that in an uncertain stablecoin market, DAI offers unrivaled liquidity, security, and reliability.”
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The Compound D3M module operates by calculating how much DAI supply is required to drop the interest rate down to a pre-agreed target rate determined by Maker Governance, currently set to just 2%. A fully automated Maker Vault ensures a stable borrowing rate is maintained by minting the required amount of DAI against returned cDAI – an interest-bearing token that represents a compliant representation of DAI balances supplied to the Compound protocol. In exchange, MakerDAO will be able to earn interest on Compound’s DAI deposit rate, while the DAI utilization ratio is also improved through Compund’s growing user base.
Geoffrey Hayes, CTO at Compound Labs, said: “D3M is an incredibly useful tool that will help Compound’s users overcome some of the biggest problems when it comes to borrowing. We know that when borrowing demand is high in DeFi, the borrowing rate of stablecoins can spike. D3M mitigates this spike by minting DAI and supplying it to the Compound protocol, decreasing interest rates and ensuring stability in the price. Conversely, when the demand is low within DeFi lending, DAI will be removed from Compound in order to increase the interest rate to competitive levels. The integration is a win-win for both Maker and Compound, and strengthens the overall DeFi lending sphere, making it easier for users to access borrowing.”
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