DAI (DSR) Fixed Rate Stablecoin Market On FiRM
Inverse Finance is introducing stablecoin collateral in FiRM, enabling a host of strategies for our community. DAI is the largest decentralized stablecoin in the industry and we make it possible to use DAI deposited in Maker’s newly introduced DAI Savings Rate (DSR) module to borrow DOLA. The DSR, along with ETH staking rewards, is likely to set the tone for rates in the DeFi space going forward, and this yield bearing collateral is a perfect pairing with fixed rates using DBR’s.
DAI holders can earn yield on their DAI while also using it as collateral for DOLA loans. This market allows DAI holders to borrow at fixed rates with a high collateral factor (potentially as high as 90%) , moreover, there are no lockups and users may withdraw at any time.
Stablecoins as collateral for lending is not novel but we still limit total exposure to 25% of all borrows on FiRM. 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, seeking an alternative method for borrowing at fixed rates against their stablecoin reserves.
How is DAI backed?
DAI is backed by collateral deposited into collateral debt positions (CDPs) on Maker. When a user deposits collateral into a CDP, they are essentially creating a DAI loan with MakerDAO. The collateral that is deposited serves as security for the loan and it can be liquidated if the price of the collateral falls too much.
How does DAI DSR work in FiRM?
FiRM deposits your DAI tokens into the DAI Savings Rate (DSR) smart contract to earn interest on your DAI tokens, and the current rate is 5%. You can withdraw your DAI tokens from the DSR contract at any time. Your collateral is not lent out to borrowers, but held in your Personal Collateral Escrow that you control.
How Do I Borrow Against DAI (DSR)
You can combine deposits, borrows and purchasing DBR for convenience in FiRM’s interface. Prepare the position as you prefer and FiRM will let you confirm approvals and transactions in sequence when you’re done.
Deposit DSR DAI into the FiRM market.
Purchase DBR for your desired duration (don’t run out, read about recharging here)
You can perform any of these actions individually after the position has been created, just click the “Exit Mode” button once you wish to reduce the position.
It is important to do your own research (DYOR) before depositing your DAI tokens into the DAI Savings Rate (DSR) and FiRM. There always is some risk involved in any investment, and you should make sure that you understand the risks before you proceed.
I hope this blog post has been helpful. If you have any other questions, please feel free to ask @Nakamomo in Discord. Feel free to drop in to the community and ask questions on our Discord server. You can find more detailed information in our docs and here is a link to a more general FiRM & DBR explainer.