Maker Mistaker

Key Insights

• From January to July 2023, Maker's revenue expectations surged fourfold to $140 million, and profit expectations increased fivefold to $80 million, driven by higher interest rates and real-world asset adoption.
• A recent change to the protocol caused a drastic decline in profit expectations for MKR holders. Profit expectations plummeted from about $80 million in July to less than $2 million in August, primarily due to an increase in interest payments to DAI holders.
• The introduction of the Enhanced DAI Savings Rate (EDSR), which increased the payout rate to 8%, resulted in increased DSR adoption with inflows of $1 billion in 10 days. This increased the protocol’s interest expense to an annual rate of $100 million, erasing profit expectations.
• The EDSR will be adjusted to a maximum of 5%. The proposal also plans to increase the borrowing rate for DAI, ensuring the deposit rate doesn't exceed the borrowing rate.
• Scenario analysis suggests that Maker can return to an $80 million annual profit with a DAI supply of 6 billion and 35% DSR adoption or 8 billion DAI supply with 50% DSR adoption.

We recently wrote about how higher interest rates and the adoption of real-world assets have driven a turnaround in Maker’s fundamentals. From January to July 2023, Maker’s revenue expectations quadrupled to $140 million, and profit expectations quintupled to $80 million.