Dai Savings Rate (DSR)The Dai Deposit Rate (DSR) is an important mechanism in the Maker protocol that allows all Dai users to automatically earn savings benefits. Users simply lock their Dai into the Maker Protocol’s DSR contract. This contract can be accessed through Oasis's deposit platform or other platforms connected to the Maker protocol, and there is no minimum deposit requirement. Users can withdraw some or all Dai from the DSR contract at any time.
DSR adjustment mechanism
As a global parameter of the system, DSR determines the returns that Dai holders can receive based on their deposits. When the market price of Dai deviates from the target price due to market changes, MKR holders can maintain price stability by voting to change the DSR:
If the market price of Dai exceeds $1, MKR holders can choose to gradually reduce the DSR, thereby reducing the demand, thereby reducing the market price of Dai to the target price of $1.
If the market price of Dai falls below $1, MKR holders can choose to gradually increase the DSR to stimulate an increase in demand, thereby increasing the market price of Dai to the target price of $1.
Initially, there will be a weekly DSR adjustment process. MKR holders first evaluate and discuss public market data and specific data provided by market participants before voting to decide whether an adjustment to the DSR is necessary. The long-term plan is to implement the DSR Adjustment Module, an Instant Access Module that can directly control DSR and Base Rate. Through this module, a single MKR holder can easily adjust the DSR on behalf of a group of MKR holders (the amplitude range and frequency range of the adjustment are preset by the MKR holder). The plan is to increase DSR's sensitivity to rapidly changing market conditions and avoid overuse of two standard governance processes, executive voting and governance voting.
Governance of the Maker Protocol
The use of MKR tokens in Maker governance
The MKR token is the governance token of the Maker protocol, allowing its holders to modify the Maker protocol through voting. Not just MKR holders, anyone can submit a proposal to initiate a MKR vote. Changes to Maker Protocol governance variables are unlikely to take effect immediately after being approved by a vote. If voters choose to activate the Governance Security Module (GSM), activation of these changes will be deferred (for up to 24 hours). This period gives MKR holders an opportunity to act, and if necessary, they can trigger a shutdown mechanism to oppose malicious governance proposals (for example, changing the collateral parameters to a proposal that is contrary to the current monetary policy, or shutting down Proposal for safety mechanisms).
Proposal voting and execution voting: The Maker governance process includes proposal voting and execution voting. The purpose of the proposal vote is to form a rough consensus within the community before proceeding to the execution vote. This helps ensure governance decisions are carefully considered and consensus reached before entering the voting process. The purpose of executive voting is to approve or reject changes to the system state, for example, voting on risk parameters for newly introduced collateral.
Technically, each type of voting is managed by smart contracts. A Proposal Contract is a smart contract in which one or more effective governance behaviors are programmed. The proposed contract can only be executed once. Once executed, it immediately makes changes to the Maker protocol’s internal governance variables. After execution, the proposed contract cannot be used again.
Any Ethereum address can deploy a valid proposal contract. MKR token holders can select active proposals (Active Proposals) by voting for approval. The proposal from the Ethereum address with the most positive votes is selected as the valid proposal. A valid proposal gains administrative access to the Maker protocol's internal governance variables and then modifies those parameters.
The role of the MKR token in recapitalization
In addition to its role in Maker governance, the MKR token has an auxiliary role by serving as a recapitalization resource for the Maker protocol. If system debt exceeds surplus, a debt auction will be triggered to increase the supply of MKR tokens and recapitalize the system. This risk will motivate MKR holders to unite and manage the Maker ecosystem responsibly to avoid excessive risks.
Responsibilities of MKR holders
MKR holders can vote on the following matters:
Introduce new collateral types and set a set of risk parameters for them
Modify or even add risk parameters to one or more existing collateral asset types
Modify Dai deposit interest rate
Select the price feeder node group
Select emergency information input group
Trigger emergency shutdown
Upgrade system
MKR holders can use funds from the Maker buffer to pay for various infrastructure needs and services, including information input mechanisms and collateral risk management research. Maker's buffer is funded by stability fees, liquidation fees, and other revenue sources.
Risk parameters controlled by Maker governance
Each Maker Vault (e.g. ETH Vault and BAT Vault) has its own unique set of risk parameters that are enforced. These parameters are determined based on the risk profile of the collateral and are directly voted on by MKR holders.
Main risk parameters: Debt Ceiling: The debt ceiling refers to the upper limit of the total debt that can be generated by a type of collateral. Maker governance sets a debt limit for each type of collateral to ensure sufficient diversity in the Maker Protocol’s collateral portfolio. Once a certain collateral reaches the debt limit, it is impossible to generate more debt unless existing users repay some or all of the vault debt (thereby freeing up debt space).
Stability Fee: The stability fee is the annual interest calculated based on the amount of Dai generated by a vault (for users who generate Dai, the stability fee is equivalent to the annualized interest rate of the loan; for the Maker protocol, the stability fee The rate is equivalent to the annualized rate of return). Stability fees can only be paid in Dai, sent to the Maker buffer.
Liquidation Ratio: A lower liquidation rate means that Maker governance has lower expectations for collateral price volatility; a higher liquidation rate means that Maker governance has higher expectations for price volatility.
Liquidation Penalty: Liquidation Penalty is an additional fee charged to users based on the total amount of outstanding Dai in the vault when liquidation occurs. Liquidation penalties are intended to encourage vault owners to keep collateralization ratios at appropriate levels.
Collateral Auction Duration: The upper limit of the collateral auction time for each Maker vault is specific. The debt auction period and surplus auction period are global parameters of the system.
Auction Bid Duration: The end of a single auction and the minimum length of time before it ends.
Auction Step Size: This risk parameter is designed to incentivize early bidders in an auction and prevent the proliferation of bids that are too low.
in conclusion
The MKR token and the Dai deposit rate are two key components of the Maker protocol. The MKR token allows its holders to participate in governance by voting to modify various parameters in the protocol. The Dai deposit interest rate provides a way for Dai holders to obtain income while also helping to maintain the price stability of Dai. The two work together to ensure the stable operation and continued development of the Maker protocol.