We have to look at some of the mechanics that underpin the MakerDAO ecosystem to understand how the DSR was influencing DAI supply. An overcollateralized mint and burn system powers the mechanism.
Users can deposit the accepted cryptocurrencies as collateral, which is then used to mint DAI. This minted DAI, therefore, acts as a loan issued against the deposited cryptocurrency. The incentive behind this is that DAI holders get to earn passive income paid out from stability fees collected from collateralized debt positions . An 8% DSR represents a healthy return hence a strong incentive to mint more DAI. But does this translate to more on-chain activity?
DAI’s on-chain metrics confirmed that the surge in DAI supply does not necessarily suggest a surge in DAI-related transactions. For example, active addresses and transfer rates have been on an overall downward trajectory since the start of August.On the other hand, MakerDAO announced recently that the Spark protocol has been experiencing explosive growth. More importantly, over 198 million DAI was borrowed on the protocol since its launch in May.