Crypto Gloss

sDAI (Savings DAI)

Definition:

sDAI (Savings DAI) is a yield-bearing ERC-4626 token representing DAI deposited into MakerDAO’s Dai Savings Rate (DSR) contract — an on-chain savings mechanism controlled by MakerDAO governance that sets an annualized yield rate paid to DAI depositors using surplus revenue generated from the MakerDAO protocol’s lending activity — where sDAI automatically accrues yield over time and is always redeemable for more DAI than was deposited, making it a liquid, composable, and gas-efficient alternative to manually managing DSR positions. As the DSR rate has at times exceeded 5–8% annually, sDAI became one of the most attractive risk-adjusted yields in DeFi during 2023–2024.

Background: The Dai Savings Rate (DSR)

What is the DSR?

The Dai Savings Rate is a MakerDAO-governance-controlled parameter that determines the annualized yield paid to DAI deposited in the DSR contract (pot.join() in MakerDAO). It is funded by income earned from collateral fees (users who borrow DAI from collateral-backed Vaults pay stability fees; a portion flows to the DSR).

Historical DSR rates:

  • 2020–2022: Near 0% (low DeFi rate environment)
  • Early 2023: 1%
  • Mid-2023: 3.49% → raised to 8%
  • Late 2023–2024: 5–8% range, occasionally adjusted via governance votes
  • Rates fluctuate based on MakerDAO’s income and governance decisions

Key DSR mechanism:

  • Users deposit DAI into the DSR pot contract
  • DAI accrues continuously (per-second compounding)
  • Users can withdraw DAI + accrued yield at any time
  • No lockup period

sDAI: The Composable Wrapper

The original DSR required users to interact directly with the MakerDAO pot contract — locking DAI in exchange for a non-transferable claim. sDAI was created by Spark Protocol (MakerDAO’s native lending front-end) to solve composability:

ERC-4626 standard:

sDAI implements the ERC-4626 “Tokenized Vault” standard — a common interface for yield-bearing vault tokens. This makes sDAI:

  • Transferable: Can be sent, held in any wallet, or traded
  • DeFi-composable: Other protocols can integrate sDAI as collateral, liquidity, or yield source without custom integration
  • Predictable: Standard convertToAssets(shares) function calculates current redemption value

Exchange rate mechanics:

  • sDAI → DAI exchange rate starts at 1:1 and increases monotonically over time
  • If you deposit 1,000 DAI when the exchange rate is 1.00, you receive 1,000 sDAI
  • After one year at 5% DSR, that 1,000 sDAI is worth approximately 1,050 DAI
  • The exchange rate never decreases (yield only accrues, never reverses)

Why sDAI Gained Prominence

Compared to USDC/USDT:

sDAI offers yield that traditional dollar stablecoins (USDC, USDT) do not pass through to holders. While Circle and Tether earn treasury yield on reserves, holders receive 0%. sDAI holders receive the full DSR yield.

Compared to raw DSR:

sDAI can be used across DeFi as collateral (accepted on Aave, Morpho, Spark) without forfeiting yield — something impossible with locked DSR positions.

Real-world asset backing:

MakerDAO’s 2023 “Endgame” strategy deployed billions into U.S. Treasury securities, generating yield used to fund a high DSR rate. This made the DSR (and thus sDAI) self-sustaining without relying on protocol token inflation.

Integration and Adoption

Platforms accepting sDAI as collateral:

  • Aave v3 (multiple chains)
  • Spark Protocol (MakerDAO’s own lending product)
  • Morpho Blue
  • Yearn Finance vaults
  • Various chain-native lending protocols on Gnosis Chain, Optimism, etc.

sDAI on Gnosis Chain:

A separate sDAI deployment on Gnosis Chain allowed users on that network to earn DSR without bridging to Ethereum mainnet, using a bridge relay mechanism to transfer DSR yield cross-chain.

Relationship to Sky Protocol / USDS

Following MakerDAO’s rebrand to Sky Protocol in 2024:

  • DAI was joined by USDS (the new Sky stablecoin)
  • sDAI’s counterpart in the Sky ecosystem is sUSDS (Savings USDS)
  • Existing sDAI continues to function; the DSR and sDAI were not deprecated in the initial rebrand phase
  • See: MakerDAO Sky

Related Terms

Sources

Last updated: 2026-04