Question 1

What is the DAI Savings Rate (DSR) and how does it work?

Accepted Answer

The DSR is a yield paid to anyone who deposits DAI into MakerDAO's DSR contract. There's no minimum deposit, no lock-up, and no counterparty risk beyond Maker itself. Unlike a bank account where interest compounds monthly or annually, DSR interest accrues every block (~12 seconds). Your DAI balance in the DSR contract grows continuously - there's no need to 'claim' interest. The DSR rate is set by MakerDAO governance as a monetary policy tool.

Question 2

How does sDAI relate to the DSR?

Accepted Answer

sDAI (Savings DAI) is an ERC-4626 token that wraps DSR deposits. When you deposit DAI into sDAI, your DAI goes into the DSR contract and you receive sDAI tokens representing your share. The key difference: DSR deposits are not transferable - sDAI tokens are. This makes DSR yields composable: you can use sDAI as collateral in Aave or Spark, provide it as liquidity on Curve, or trade it on DEXs. The value of 1 sDAI always equals or exceeds 1 DAI because yield continuously accrues.

Question 3

How is the DSR rate set and changed?

Accepted Answer

MakerDAO governance sets the DSR through executive votes on-chain. The Sky governance system uses SKY tokens (and previously MKR) for voting. When DAI drifts below $1, governance might raise DSR to encourage holding DAI and reduce circulating supply. When DAI is above $1, DSR might be lowered to reduce the cost of DAI accumulation. Rate changes have a governance delay and take effect immediately once executed. Historically, DSR has ranged from 0% to 8%+.

Question 4

What is MakerDAO's chi (?) accumulator and how does it work?

Accepted Answer

Chi (?) is a per-block accumulator that tracks DSR accrual. Every block, chi increases slightly based on the DSR rate. Your DSR balance = initial deposit  chi. At the start of a rate period, chi = 1.0. After one year at 5% DSR, chi ? 1.05. The chi rate is set at the beginning of each rate period (typically 1 year) but interest accrues continuously. The DSR contract can be upgraded by governance to change the chi rate, and the previous accrual is preserved.

Question 5

Why does MakerDAO pay users to save DAI?

Accepted Answer

The DSR is primarily a monetary policy tool, not a product feature. By paying yield on DAI, MakerDAO creates demand to hold DAI rather than spend or convert it. This helps maintain DAI's $1 peg - if DAI is trading below $1, raising DSR gives people an incentive to buy and hold DAI, reducing circulating supply. The revenue to fund DSR comes from stability fees on Vaults and excess surplus from the PSM. The DSR effectively makes DAI a yield-bearing stablecoin.

Question 6

How does the DSR interact with DAI's circulating supply?

Accepted Answer

When DSR is high (e.g., 8%), a significant portion of total DAI supply gets 'locked' in the DSR contract, reducing circulating supply. Less circulating DAI means it's scarcer for payments, DeFi, and other uses. This is intentional - if DAI is below peg, locking DAI reduces sell pressure and helps the peg recover. The DSR essentially gives Maker a lever to modulate DAI liquidity similar to how central banks adjust reserve requirements.

Question 7

What is the risk of the DSR being reduced to 0%?

Accepted Answer

The DSR has no contractual guarantee - MakerDAO governance can set it to 0% at any time. A sudden drop to 0% would cause DSR depositors to withdraw and either convert DAI to other stablecoins (USDC, USDT) or deploy it elsewhere. This large DAI sell-side pressure could push DAI below peg temporarily. In practice, MakerDAO's governance is slow-moving and has historically avoided abrupt changes. The existence of sDAI provides composability that gives DSR depositors additional exit options (selling sDAI on DEX rather than unwinding DSR directly).

Question 8

How does Spark Protocol's DSR compare to MakerDAO's native DSR?

Accepted Answer

Spark Protocol leverages MakerDAO's DSR as the backend for its sDAI savings product. Spark depositors deposit DAI -> receive sDAI -> sDAI DAI is in Maker's DSR. Spark then lends out DAI from its lending pool to borrowers at variable rates, capturing the spread between what borrowers pay and what DSR pays. This means Spark's effective DSR is Maker's DSR + Spark's lending revenue. Spark also has a D3M (Direct Deposit Module) that can deposit up to 100M DAI directly into SparkLend from Maker, bypassing the DSR for institutional depositors.

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