Risk & reward comparison of holding DAI vs USDS (new iteration of DAI).
TL;DR:
- DAI <> USDS always convertible 1:1 (USDS inherits DAI liquidity)
- DAI is immutable and is not going anywhere
- USDS is upgradeable, can add a freeze function later for regulatory reasons
- Upgrading DAI to USDS is incentivized with higher savings rate, SKY rewards, and @ChronicleLabs points.
A bit of context:
MakerDAO has recently rebranded to @SkyEcosystem.
This came with new iterations of DAI (USDS), MKR (SKY), and sDAI (sUSDS) tokens.
Here we'll focus on the difference between holding/using DAI and USDS as stablecoins from the risk & rewards perspective.
Agenda:
- Brief intro to USDS.
- DAI is here to stay.
- DAI to USDS conversion.
- Contract upgradability (freeze function).
- Savings rates & rewards.
- Liquidity considerations.
- USDS usage since launch.
- Holders distribution comparison.
- Upcoming PureDAI token.
Brief intro to USDS.
As a successor to DAI, USDS will focus on scalability and utility by taking over the RWA and TradFi integrations of DAI.
To reach global scale, USDS aims for peg stability and scalability while introducing flexibility by being an upgradable token contract.
DAI is here to stay.
Upgrading to USDS optional (and can be reversed).
DAI will remain pegged to USD and will have no phasing out any time soon, so people can simply continue to use it for a foreseeable future as is.
Converting DAI to USDS (and vice versa).
Since the token launch DAI is convertible to USDS at a 1:1 ratio manually at sky[.]money (and other FEs).
Furthermore, multiple DEX aggregators have already integrated DaiUsds migration contract meaning "swapping" from DAI to USDS is available without slippage.
The conversion works both ways and can be done atomically via the DaiUsds contract (link available in the last tweet).
Contract upgradability.
- DAI: contract *is not* upgradeable, implying DAI's technical immutability.
- USDS: contract *is* upgradeable, with any potential changes being subject to a decentralized governance voting process.
Freeze function of USDS.
Currently, USDS doesn't have a freeze function implemented.
Still, as USDS will focus on mass market adoption by having compliant RWA backing, it's expected that USDS will be upgraded to include it eventually to meet regulatory requirements.
The implementation of the freeze function may take several months or even years, depending on the growth of USDS.
Savings rates and rewards.
Current state:
- DSR (sDAI) = 6% (soon to be 5.5%)
- SSR (sUSDS) = 6.25% (soon to be 6.5%)
Beside the difference in savings rate, DAI holders are also incentivized to upgrade to USDS with:
- SKY rewards (earning 7.6% APY atm)
- Chronicle points.
Future of DSR.
DSR will begin to be phased out by gradually decreasing the rate down over time. While there is no precise timeline for the pace of this process, it is expected that rate will remain for forseable future.
Eventually, yield will only be available for USDS holders.
Liquidity considerations.
With the 1:1 conversion put in place, USDS effectively inherits DAI's deep onchain liquidity.
Additionally, following the migration of USDC liquidity from PSM to the new LitePSM there is now ~$1.9b in USDC available for USDS holders wishing to unwind.
Future expected growth in USDS liquidity.
To increase USDS utilization, Maker plans for USDS to build upon DAI D3Ms by injecting USDS into various blue-chip lending protocols including Aave v3, SparkLend, Morpho, etc.
This will contribute heavily to USDS's presence across DeFi.
Usage of USDS since launch.
Total supply of USDS currently stands at 1.09b.
The usage of USDS so far has mostly been related to:
- farming SKY rewards (482m, 44.6%)
- depositing into SSR to earn yield (469m, 43.4%)
The remaining USDS either sits in users wallets, surplus buffer, UniV2 SKY/USDS pool, or earning Chronicle points.
Data: @BlockAnalitica
Comparison of holders distribution.
After only 15 days since launch, there is effectively 767 wallets utilizing USDS, while 192 hold USDS in wallet, remaining 575 are either SKY or points farmers.
As anticipated, DAI is much more widely distributed given its age, with over 504k holders.
PureDAI.
To address the decentralization aspect of the stablecoin trilemma, Maker intends to launch a new stablecoin, temporarily named "PureDAI," in the coming years.
PureDAI will be immutable, completely independent from any centralized control, and will be backed solely by decentralized collateral.
Two paths.
With this approach, Maker aims to offer both scalability-focused and decentralization-focused stable assets in the long run.
Current DAI holders will eventually be able to choose between USDS and PureDAI.
Relevant links.
- DAI/USDS Exchanger contract: etherscan.io/address/0x3225737a9Bbb6473CB4a45b7244ACa2BeFdB276A#code
- Sky protocol (DAI & USDS) dashboard by @BlockAnalitica: info.sky.money/
definikola
@definikola
DeFi research and risk at @BlockAnalitica. prev: @DeFiSaver. Writing about the latest developments in DeFi.