| # / 00:00 |
Richard Brown |
Hello everyone and welcome to the March 7th edition of the scientific Governance and Risk meeting. I say this every time, but I'm going to say it again. This is going to be a good call, because we have some interesting things happening in MakerDAO in general, and we have some interesting guests joining us today. Usually, I have the brief little preamble and I immediately hand it off to Steven to do the heavy lifting, but Steven's not here today because Steven and Rune are traveling. So, we're going to be left to our own devices and I need to explain the agenda myself. So, I'm going to have to do preambles today. The first one is that we are intensely interested in our community, and our community is probably the smartest community in all of crypto. So if anybody has questions, please type those questions in the chat, if you don't have access to a microphone. If you do have access to a microphone, please feel free to jump into the conversation. So interrupt people, if you feel you need to, if it's important. Otherwise, wait for a pause and then let us know what you're thinking. |
| # / 01:04 |
Richard Brown |
We have a lot of deep thinkers in these calls and it's behooves everybody to have a spot at the podium and share your experience in this space. I know personally I'm no financial genius, so any additional insights I can glean from these calls; they are enormously useful for me. I want to talk a bit about our agenda today. We're spicing this one up a bit, because we think ... reasonably sure this is the first time we've had a special guest in this call. We've had interest in the past, but I think that's ... We're very serious about MakerDAO, and we're serious about financial systems. Excuse me. We're just generally serious people on these calls, and I wanted to find a serious project to help kick us off. And Dharma is up to some interesting things. And we like Dharma, and we like the people that work there, and we like what they're doing. And they've just released a new product called Lever. And so we have Nadav and Max Bronstein are in the call today. |
| # / 02:06 |
Richard Brown |
After the preamble is over, we're going to kick it over to them to get an explanation about what Lever is all about, how it works, why that's interesting for the DAI ecosystem, and maybe dig into some of the mechanics of how they've designed their tool. I'm also actually, well, yeah. Okay. So the next item on the agenda too is after we've finished talking about Dharma and why that's interesting, we'll dig into recent governance events. Major, I think that we obviously need to keep on talking about is the stability of the peg, and how the activities we've been taking in these calls have been affecting that. And those activities being, for the people that are just joining us for the first time. Excuse me. We've had a governance poll, that we've posted three days ago, to determine the community's appetite for a larger change than the one that we previously discussed. |
| # / 03:00 |
Richard Brown |
A change was to raise the stability fee by an additional 2%, to a total of 3.5%. And we saw that there was a tremendous, there seemed to be a tremendous level of support for that decision, almost immediately. It was in 24 hours, we saw 40,000 MKR staking in support. And, actually the thing that I find most interesting and very encouraging, is that we saw 9 MKR's staked in opposition. And that may sound a bit silly and a bit cute, but I think that there's a tremendous amount of value to seeing that, because with any kind of voting system, especially with something that's a lot like a shareholder's vote that we have here, signaling disagreement even when in the face of overwhelming opposition is important. |
| # / 03:52 |
Richard Brown |
So it's very important that our community gets together and understands that this is a signaling method. And just because you've seen somebody already sort of moving in a direction that you either thought you want to move in, or disagrees with your position, doesn't mean it's time to just not get involved. It's important for everybody to see that there are outliers here and there are dissenting opinions. So, if you disagree with the poll, make sure that you vote, even if you don't think that's going to make a huge difference. There's a signal there that needs to be understood. Now that I think the poll is scheduled to end any minute now, I believe obviously there's not a lot to discuss about the ambiguities of that's fantastically- |
| # / 04:38 |
Cyrus Younessi |
I think the poll has ended. |
| # / 04:39 |
Richard Brown |
Has it? Yeah. Okay, cool. The system works. All right. And so what we need to talk about now is what happens next. And what happens next is that we talk about the poll, which was scheduled for this call. I'm not sure. Well, I'd be interested in seeing what that conversation looks like. We'll get into that after the Dharma presentation, but the next step is tomorrow, we initiate an executive vote. And that executive vote will be implementing a new state of the MakerDAO ecosystem, and that new state includes the increased stability fee. And, that voting mechanism is continuous approval. |
| # / 05:20 |
Richard Brown |
So, as long as the vote to increase the stability fee has more people staking their MKR there than they do in the previous work, then that will be enacted. My favorite part of the system, strangely enough, is the fact that anybody can actually execute that change in the system. So, once we've tipped the balance into the new state, I think the last couple of times somebody on the internet has actually executed the new face of MakerDAO for us and saved us the 36 cents in gas, which I appreciate. I think that that is probably ... We already have a pile of questions or Dave is there anything that we need to address? I don't know, it's just ... |
| # / 06:06 |
David Utro |
It's just people talking on the chat. |
| # / 06:09 |
Richard Brown |
Okay, cool. I think that leaves the top high level agenda specified, so we're going to talk to Dharma for a bit and then I'm going to hand it over to Cyrus, as the face of the interim risk team to provide some context, and maybe dig into whether we saw anything interesting in the last week, or what interesting things we can expect to see in the future. And then after that, if time allows, I want to talk a bit about how we're going to optimize this governance process a bit, because there's a [crosstalk 00:06:42]- |
| # / 06:42 |
Matthew Rabino... |
Sorry to interrupt. Go ahead. |
| # / 06:44 |
Richard Brown |
No. I actually asked for it, so go ahead. |
| # / 06:46 |
Matthew Rabino... |
I was just asking are we going to be talking also about potentially raising the debt ceiling? |
| # / 06:50 |
Richard Brown |
Yeah. And that's going to be something that Cyrus is going to dig into. Sorry, did I just cut you off Cyrus? You want to talk about that? |
| # / 06:56 |
Cyrus Younessi |
Yeah, I was just going to say the same thing. Well, we can talk a little bit about that later. |
| # / 07:01 |
Richard Brown |
Yeah. We're in a position where we have to kick off this executive vote and then we need to see what happens. So, at this point, next steps are going to be theoretical. But yeah, [inaudible 00:07:10] conversation that Cyrus will be leading us through. Does that make sense Matthew? |
| # / 07:16 |
Matthew Rabino... |
Yeah. |
| # / 07:21 |
Richard Brown |
Cool. if time allows at the end of the call, I would like to start talking about how we optimize this process a bit. Because governance, surprisingly, is a fantastically complicated thing. Not only from a sociological standpoint, or in a theoretical standpoint, but just mechanically, it's tricky. We need to figure out how do we communicate with the community? Where do we post our notices, how do we make sure people are informed? How do we maintain those debates? How do we try to turn around our voting process in a short enough timeframe for us to maintain agility, and velocity, and trying to stay ahead of the requirements for the ... That the risk team sets for us in order to maintain that [type 00:08:04], which I think would be interesting too. |
| # / 08:07 |
Richard Brown |
All right, well that was a bit of Speechify, and I am done with that. The next thing I wanted to actually before I turn it over to ... Or introduce Dharma, I want to introduce someone else. A new, old face, or an old, new face. I'm not sure that either of those things sound very flattering, but we have a new addition to the team in the form of Kenny Rowe. There's no saying new old is that Kenny is an OG at MakerDAO. He was there at the outset, took a little detour and now he's back. Kenny, do you want to give us a little introduction? |
| # / 08:40 |
Kenny Rowe |
Hey Rich. Well, that sounds pretty much the course. So, I joined Rune and the team probably a few months after they'd initially got together and came up with the e-dollar, which was that Reddit post back in I think 2014, or 2015. Like Rich said, I took a little bit of a time doing work on another project, which didn't work out so well. But, today I'm back, and it feels very much like a homecoming for me. But I'm very interested in governance and community, and these are very much the problems I would want to be working on. So yeah, looking forward to it. |
| # / 09:19 |
Richard Brown |
Right on. I'm excited to have you back. It's that deep insight into the system, which I think is enormously valuable, and experience with governance and taking some hard knocks in the past and come through it, and having deep insight into how these things work is going to be valuable for everyone. So Kenny will be working with the community development team, particularly in the areas of governance and he'll be picking up some of the heavy lifting. And also, specifically involved with some of the things that I just talked about where, how do we optimize this process? How do we ensure that voting is transparent, and visible, and maintains velocity in response to the community needs, in a way that allows us to do that in less than 5 days. So that's kind of the challenge right now. That's going to be tough. So, we'll figure out what that looks like. Okay. Anybody with any questions we need to address in this side then? |
| # / 10:18 |
David Utro |
Well, actually [inaudible 00:10:18]. I'm sorry, I missed it. Christine Kim asks, "Hi guys. Question about the executive vote and the tipping to the new state. Any good resources people can link me to about how it works and has worked in the past." Yeah, Christine. I'm going to post the link in the chat for you of actually a really great article that somebody in our community did. |
| # / 10:37 |
Richard Brown |
Yeah, there's a great article. There's mechanics too available, and this is a resource that we need to keep on pushing as much as possible, but also MakerDAO as far as I'm at the central, it's the ancient scrolls on the central archive of everything that's happening in the system. It can be a bit daunting, but it's always a great place to start if you want to figure out what's going on. |
| # / 10:56 |
Richard Brown |
Okay. The preambles are over. So I want to introduce Nadav and Max, from Dharma. Because I'm very interested in hearing about how Lever works, and digging into some of the internals and then maybe getting into a little discussion about how that affects MakerDAO ecosystem. So, who would like to kick us off Max, or Nadav? |
| # / 11:19 |
Nadav Hollander |
I can start off. So first of all, thanks for having me everybody. And just so I know, what sort of time window do we have for this discussion right now? |
| # / 11:26 |
Richard Brown |
I blocked off 15 minutes, but we can go long if- |
| # / 11:30 |
Nadav Hollander |
Okay. Yeah. We'll try to keep it tight to respect you guys' time. Yeah. So basically, Dharma is a peer to peer lending marketplace for cryptocurrencies that is administered entirely by smart contracts. And specifically in the context of DAI, we recently announced our integration of DAI into the product. And so right now you can go onto dharmalever.com and either lend out your DAI for an interest rate, or essentially put up some ETHER and borrow DAI against that. The kind of internal mechanics of the system, are in many ways similar to the way CDPs work, but have some subtle differences to them. So, one kind of big difference is that loans in Dharma are fixed term. So, whereas a CDP can be taken out and you kind of have this infinite time window in which you are allowed to hold your DAI, in Dharma there's a cap on that time window. And typically speaking, in the system right now people are doing 28 day loans, but theoretically it could be any variety of different numbers. |
| # / 12:52 |
Nadav Hollander |
The reason why this exists is that, in Dharma, there are two sides to the marketplace. There are lenders and borrowers. And lenders have an interest in having some sort of timeline on getting their capital back. And so, you have to inject a lot of the dynamics of the peer to peer lending marketplace into the system. So, beyond that though, the system ... The way that the contracts work, on an individual loan basis are very similar to the way CDPs work. Their loans are over-collateralized currently to the same extent as CDPs are required to be. Actually, a little bit lower. But, currently to a similar sort of extent. And there is a price feed that essentially mediates when the position can be closed by third party arbitrager, and liquidated. And liquidation processes are, again, very, very akin to Maker to or Compound in that where, somebody essentially comes and purchases the underlying collateral using the principal at some sort of discount in order to incentivize the action. So that's, really quick, like high level on Dharma, and how and how it works. |
| # / 14:21 |
Nadav Hollander |
Kind of biggest thing that we have been pouring our energy into in the short term has been just honestly, usability. We've made it a giant priority to basically build a platform that is accessible, not just to MetaMask users, but also to anybody who has just a normal cryptocurrency wallet. So, taking a step back, what does this mean for DAI and the MakerDAO ecosystem? Obviously, we are immensely enamored with the DAI ecosystem and have ... I mean, it's just such an incredible inspiration for us to see what Maker has done. And, I think right now it's early days. We just launched the DAI integration. And so, I will caveat that this is all very like theoretical conversation of what happens if we manage to get a lot more liquidity. But, if that is the case and hopefully we hope that it's going to be the case, there's going to be some very interesting dynamics between products like Dharma as in like peer to peer lending markets, and then the kind of core-issuance system of Maker and DAI in general, specifically with regards to the stability fee. |
| # / 15:38 |
Nadav Hollander |
So for instance right now, we're in a place where the Lever interest rate is significantly lower than the Maker stability fee that we are moving to. Which, as far as I've understood it, at least in the current frame of Maker's goals in increasing the stability fee, is actually quite advantageous in that, essentially there is a ... Those who are trying to borrow DAI for leverage, have essentially an alternative that doesn't involve minting more DAI, adding more DAI supply, and it's kind of economically cheaper. And so, in situations like right now, where Maker wants to disincentivize DAI creation, is actually beneficial to have essentially an alternative that is almost like the equivalent of getting DAI on the secondary market in a sense, to use kind of a little bit of a crass analogy. |
| # / 16:43 |
Richard Brown |
But that's interesting thing to discuss actually, because Compound actually said something interesting in a tweet yesterday. I think in relation to the interplay between MakerDAO and other lending facilities that are offering cheaper rates. That, eventually there needs to be an equilibrium, or equilibrium will be reached, actually whether people like it or not, between the various lending platforms. And then the question becomes, I think a matter of value ad and target demographics possibly, that people would be other moving from Uniswap to Compound to Lever [crosstalk 00:17:22]. Actually, yeah, that's a good point. Did they mention that somewhere on the Twitters? |
| # / 17:31 |
Chris Burniske |
Well, it's the idea that there will be different interest rates, because these different credit facilities will have different amounts of risks that go with them. And so we would expect the lowest cost credit facility to be operating most efficiently. And hopefully be operating most efficiently, because at least in the case of Maker, although it'll be interesting to see how secondary markets play into this. But if it's got the biggest insurance pool, then it's the lowest risk. And then as you go up, there are incremental layers of risk, but I'm not sure how that ends up playing into the secondaries. It's worth thinking about more. |
| # / 18:15 |
Richard Brown |
Yeah, I'm not clear on that as well. Sorry, go ahead. |
| # / 18:20 |
Nadav Hollander |
Yeah. I think where I would be ... Where I get pause on the thought of the effect of these secondary markets on Maker, is in competition over collateralization. In that, we kind of have ... We have the liberty of being able to have a market driven approach to figuring out what the rate of collateralization are required, collateralization is going to be on loans. And so, right now- |
| # / 18:51 |
Richard Brown |
Can you speak a bit to the how, to how you determine that. |
| # / 18:54 |
Nadav Hollander |
Yeah, absolutely. What's different about something like Dharma and Compound, is that there are no global parameters in Dharma that essentially draw a line in the sand that all loans must be X percent collateralized. It's just a peer to peer lending marketplace where people put out different offers and requests for loans. And so I can say, "I'm willing to invest in any loan that is at least 100% collateralized, that time of issuance." Or, I can dial that number in any direction. |
| # / 19:34 |
Richard Brown |
Maybe I misunderstood. As far as Lever goes though, you're kind of in a different world though, right? You do need to specify some minimal collateralization ratio? |
| # / 19:42 |
Nadav Hollander |
Yes. But the point being that, that is an application layer constraint right now that we are enforcing. But, that's very much due to the conservatism of where we are right now. And it's very likely that we're going to lower the thresholds over time. And the reason why we feel comfortable doing that is, because whereas Maker has the kind of primary goal of upholding a peg, that is not necessarily in our incentive systems. So, it's really just about kind of making sure the market clears, and our ... from our standpoint. |
| # / 20:20 |
Nadav Hollander |
And so, where I think it gets interesting, is that ... and again, I'll say this again, it gives me pause on what this means for the Maker ecosystem, if we manage to kind of achieve meaningful traction is that, I think we all know that DAI holders, or rather DAI issuers, by and large tend to be essentially minting DAI for leverage purposes. The biggest kind of lever, no pun intended, that actually kind of affects how much leverage you can get is not the stability fee or your interest rate, but rather the collateralization ratio. Like I said, I haven't totally thought through this yet, but I think if anything that will be a more interesting number to watch with regards to how the different protocols kind of compete for liquidity, than the- |
| # / 21:25 |
Richard Brown |
Sorry. Let me just frame that. So you're saying that the collateralization ratios, the lever that you guys use, and obviously it's a lever that we don't ... We talked about stability fees or in the future, DAI savings rates and potentially at some point possibly a debt ceiling adjustment. But for your model, it seems like you have obviously significantly more flexibility. So it's the collateralization ratio is the primary lever that you guys are talking about. |
| # / 21:53 |
Nadav Hollander |
In the context of this conversation, yes. I mean, again, and this is like a perhaps a half baked thought, but I think that the longer ... perhaps to put it bluntly, the longer that the primary DAI minting use case is leveraged, if that remains the case forever, then that puts ... that in my opinion puts the Maker system in a bit of a fragile position, insofar as it is competing with other platforms that don't necessarily need to care about upholding a global peg, but rather only want to clear individual trades. |
| # / 22:39 |
Richard Brown |
Yeah, it's an discussion, because it depends on the competitiveness of decentralized stable coins in the space. And right now that competition is obviously in our favor, because we're the only game in town. So with a tool like Lever, if the primary use case is lending and/or borrowing DAI or ETH, but that DAI needs to come from somewhere. And that somewhere is maybe [inaudible 00:23:05]. |
| # / 23:09 |
Chris Burniske |
What I'm hearing implicit in the conversation too is a race to lower collateralization ratios, which increases risk, which then makes all of these systems more fragile. And so that's, Nadav, I think that's also what I hear you getting at. And how that's ... maybe it's okay on a secondary issuance platform, but if the primary issuance platform succumbs to the competitive pressures of the secondary platform, then if the primary platform hits a serious glitch, then everything unwinds. And so, protecting the primary platform from the drive to increase collateral efficiency by decreasing the ratios, I think it's going to be an important piece of discipline. |
| # / 23:58 |
Matthew Rabino... |
One of the other question I have on that, I mean, Maker and it's fundamental core is basically a repo facility with an unlimited time horizon. And the term you're outlining of 30 days, or maybe if you have more terms. I mean, you're basically constructing a repo with a time horizon and a reverse repo ... which is very interesting, I mean it's a separate product. I mean, reverse repos don't exist right now for Maker, and the way you've, at least the way I've seen it on the site, it's basically almost a Uniswap model of a repo and a reverse repo. Is that correct? |
| # / 24:34 |
Nadav Hollander |
I'll be honest, I'm not extremely literate in the term repo/reverse repos. So, I don't feel like I'm qualified to say whether that's the case or not, but I would agree with the sentiment that it is fundamentally a different type of debt product, in that it's a fixed term facility and not an open ended facility. |
| # / 24:55 |
Cyrus Younessi |
That's interesting actually. Ashleigh you always have a great question, so if you want to jump on the mic? |
| # / 25:00 |
Ashleigh Schap |
Yeah. Sorry, I just typed one in. Oh, yeah. Could you turn your sound off? Sorry, I'm with ... Can you guys hear me? |
| # / 25:09 |
Cyrus Younessi |
Yeah. |
| # / 25:10 |
Ashleigh Schap |
Okay, cool. Yes, I just typed it in. But, I guess Nadav, how are you guys actually keeping this lending and borrowing rate at at 0.1%, if it's a peer to peer marketplace for debt. How are you guys ... Are you just like sort of artificially enforcing this, and who is taking the risk there? |
| # / 25:33 |
Nadav Hollander |
Yeah. That's a great question. So I mean, yeah, the answer is we are absolutely artificially enforcing that right now. So, as an artifact of the fact that we just launched this, and we want to incentivize liquidity, we are subsidizing the difference right now from our own balance sheet. That is not going to last forever, for a lot of reasons. |
| # / 25:57 |
Richard Brown |
What does that transition into? Are you moving into an algorithmic sort of model, whereas the market will determine what these results are? Or, are you- |
| # / 26:04 |
Nadav Hollander |
We're moving into like an order book based model essentially. And so, the idea of being that there will be different offers that lenders have, and on the borrower side you'll be matched with the kind of best offer that's available. So the rates that you are saying right now admittedly are not necessarily reflective of how things will look in the longer term, but I do think that it's worth kind of talking through the different scenarios of what happens when the rate is either lower than the stability fee for CDPs, or higher than the stability fees for CDPs. |
| # / 26:38 |
Ashleigh Schap |
So, sorry to just kind of follow my question. So, obviously in the Maker ecosystem ultimately, like MKR token holders are kind of taking the risk, right? Who's taking the risk on your end? Is it the lender who's basically lending out this DAI, or where's that risk going? |
| # / 26:58 |
Nadav Hollander |
Yes, that's correct. It is the lender. There's not a singular lender for the whole system, right? It's individual lenders and individual positions. |
| # / 27:12 |
Ashleigh Schap |
Okay. Got It. So I guess that's kind of the difference between borrowing DAI at Maker versus borrowing DAI at one of these sort of secondary platforms, which kind of makes sense. Obviously, I think these rates will probably go up a little bit over time, but this is interesting. What's the recourse like for lenders? How does that work? |
| # / 27:42 |
Nadav Hollander |
Yeah, it's very similar to the way ... I think the closest analog is Compound, where essentially, a third party arbitrager/liquidator, once they see that the collateral is falling below a certain value, or the LTV rather has risen above a certain value, they can come in and purchase the underlying collateral at like a discount. And then that will essentially compensated the lender, and the remainder of the collateral will return to the borrower. |
| # / 28:14 |
Matthew Rabino... |
Have you thought about what the implications are going to be whenever there is a savings rate on DAI? |
| # / 28:20 |
Nadav Hollander |
Yes, we have. Yeah, that's pretty interesting for us. Well, look, first of all, I think it's important to take a step back from our narrow position. We don't live only in the universe of DAI. We plan on listing many crypto assets and so it's not necessarily what keeps us up at night alone, but with that being said, if we narrow in on just kind of DAI as a market, yeah, I think it's really interesting. I frankly, I don't know enough about the DAI savings rate, and kind of why ... A) why it's being added, but B) How it works and where kind of the interest rate is coming from. And so, yeah, I don't feel extremely qualified to comment on it, but I think it will be very interesting to see how those two rates kind of interplay off each other. |
| # / 29:14 |
Max Bronstein |
Yeah. I can chime in briefly. So my understanding, and correct me if I'm wrong, is that the DAI savings rate will be a function of the stability fee, so it will always be less than the stability fee. And I think kind of what we saw on the Compound is that secondary avenues to get DAI, will be important just because people will have demand to pay down their CDPs. And, they don't necessarily want to be taking a tax burden, or anything that. So, if the savings rate is sort of low, there might be a willing lender who will want to try and play the market and get a higher rate for a more desperate borrower. |
| # / 29:55 |
Cyrus Younessi |
I want to clear up something about the collateralization ratio, or maybe I'm misunderstanding you guys. But, I think there's this implicit assumption that we are not ever going to use the collateralization ratio as a tool or that it can't be changed. I think it can definitely be lowered. The 150% was just kind of something that was set long time ago. In my opinion, based on the data I've looked at, it's fairly conservative. So I think it comes down to on a liquidity adjusted basis, who can offer the best average collateralization rate. So, debt ceiling for DAI right now is about 100 million, obviously going to go up. I mean, having a couple peer to peer loans offering at one to one rate is not really a significant impact there. And, I also think that it's possible that there are potentially different buckets in the Maker ecosystem where you can have the same collateral, but divide up the debt ceiling into different ... basically different risk profiles. |
| # / 31:18 |
Cyrus Younessi |
So yes, I think that need to control for the liquidity amount and if you control for the liquidity then it kind of comes down to who has ... I mean, where's the largest insurance pool, who can kind of satisfy the most amount of liquidity and really also risk evaluation is important as well. I mean, as Chris said, it might be a race to the lowest rate, but that's also dangerous, because obviously if you get too low then you could have a catastrophe of sorts happen. So yeah, I'm not entirely sure how you guys all see it, but I think that there's definitely some nuances there, that aren't exactly discussed. |
| # / 32:07 |
Alex Evans |
[crosstalk 00:32:07] Sorry Nadav, go on. |
| # / 32:09 |
Nadav Hollander |
Go ahead Alex, please. |
| # / 32:11 |
Alex Evans |
I was just going to quickly add to that. There's also a two way feedback loop here in the sense of there's no particular reason why there should be one collateralization ratio that necessarily applies to all CDPs. And I think I've heard this discussed in the context of Multi Collateral DAI, or we could have 125% collateralization, but with a higher stability fee. 110 with an extremely high stability fee, or whatever else, right? Whatever makes sense. And that borrowers can really choose what suits their particular needs. This is where the two-way feedback loop comes in, is if the peer to peer market on Dharma is giving us information as to how different lenders are assessing different collateralization ratios from a risk perspective, and seeing what the different interest rates that they charge dependent on the collateralization ratio are. And those can be very useful from a policy perspective to the Maker risk teams when they're designing these parameters for the system. |
| # / 33:16 |
Nadav Hollander |
Yeah, I absolutely agree. I think really important point. Sorry Matthew? |
| # / 33:23 |
Matthew Rabino... |
I was going to say, I don't know if it's a feedback loop, or an opportunity for arbitrage. |
| # / 33:26 |
Nadav Hollander |
A little bit of both, I'd say. |
| # / 33:30 |
Richard Brown |
Arbitrage is obviously something that we desperately need more of in this market. We've actually gone a bit over time, so if Nadav or Max, you guys have any final thoughts or something you want to leave us with about the tool and how we could possibly check it out. That'd be cool. |
| # / 33:48 |
Nadav Hollander |
Yeah. So, two things. First of all, I saw that there were some additional questions. There are the person in the chat, or the people that didn't get a chance to totally finish, by all means, if you want to shoot me an email afterwards or a message on Telegram, what have you, with follow up questions, please feel free to [inaudible 00:34:05] my emails. nadav@dharma.io, happy to answer any questions. Number two, as the inner brain trust here of Maker, we'd love to have you guys try and play with the tool. I mean, we take a lot of pride in thinking that we built a fantastic experience for either earning interest on your DAI, or kind of borrowing more. So, if you guys shoot us a message we can ... we'd be happy to kind of bump you guys' spot on our wait list and get you into the system earlier. |
| # / 34:35 |
Nadav Hollander |
We have some kind of secret referral code that people can reference? |
| # / 34:42 |
Nadav Hollander |
Just shoot me a message on Telegram. Everybody needs that reputation system. |
| # / 34:50 |
Richard Brown |
So, [inaudible 00:34:51] on Telegram, you've heard it here. |
| # / 34:53 |
Nadav Hollander |
Right. Cheers guys. |
| # / 34:55 |
Richard Brown |
All right, thanks for coming. That was really interesting. |
| # / 35:00 |
Ashleigh Schap |
Yeah. Thanks guys. |
| # / 35:01 |
David Utro |
Thank you guys for coming. |
| # / 35:01 |
Nadav Hollander |
Yeah, absolutely. Thanks for having us. |
| # / 35:02 |
Richard Brown |
Okay. So let's dig into stability fees, governance, and the rest of that written role. So, I am posting a link in the chat to a discussion thread that's related specifically to this call. So, if you're asking questions and you feel that they weren't addressed appropriately, we ran out of time. The point of these r/mkrgov threads are to continue these discussions for the next 24 hours or so, or for however long it takes, but to make sure that these important threats aren't being lost. So, if you have questions, you can add them to that thread. After the call, I'll post a summary of the major points that we discussed here with links to transcripts, and video, and audio, and all the rest. And then we can continue the chats. But at this point, what I want to do is hand the call over to our internal risk team and the guys of Cyrus Younessi and we can talk about issues around how the governance poll went and what we think next steps might be and hopefully look at a number or two. |
| # / 36:04 |
Cyrus Younessi |
Sure. Okay, so before we dive into the stability fee and the vote, I just want to quickly talk a little bit about the methodologies that we're using, just so everybody's sort of on the same page. So, the main issue really is, how do we even track or gauge the price of DAI? So I'm going to quickly present just one source that we're using, we shared this last week as well. This is the dai.stablecoin.science created by one of our ... by Lev, who many of you know in the Maker community. So yeah, so few things to glean from this graph. Obviously, we are not quite at a dollar yet ... Oh sorry, before I get into that, we're looking at centralized exchanges, such as Coinbase, the DAI/USDC price is great. Also looking at Bitfinex, we're looking at decentralized exchanges, are primarily ETH2DAI. Also looking at 0x-exchanges and Uniswap for also gauging several OTC quotes from various OTC market makers. And, yeah, kind of taking away that average and using that to evaluate the price of DAI. What we are working- |
| # / 37:39 |
Richard Brown |
At some point ... Sorry to cut. I don't want to wreck you're flow here, but at some point, soon actually, we're going to be augmenting these things to give us some more data points to think about, right? Something like an average ETH, or the current ETH price overlaid on top of this and a stability fee polling. A stability fee line would be great and maybe even some vertical lines to specify when governance actions happen to maybe try and dig or some correlations, right? |
| # / 38:06 |
David Utro |
Yeah, absolutely. I think we will be working on a dashboard of sorts, where it will be easy for MKR holders to kind of gauge at least visually what's been happening, get a nice picture that way. Also looking at stuff like CDP destructions, CDP wipes, maybe wallet activity, just anything that can help us gauge the impact of our policy tools that ... while controlling for other variables. |
| # / 38:39 |
Richard Brown |
The risk with graphs are always that humans are designed to create narratives. So you look at these pretty pink bubbles and then you create a narrative here, and at the risk of doing precisely that can we offer any theories about why the pegs seems to deviate in the last day? And actually, I think Chris mentioned this in the chat, it looks like after the vote, this disciplinary was coming. So we do a vote and from our perspective, obviously that vote is the biggest thing that happened in the crypto market. And therefore if the peg is deviated since then, it's because of our vote. I'm not sure if that's it. |
| # / 39:18 |
Chris Padovano |
No, that's not ... Now, what I was suggesting was that the signal that we're raising rates, I thought would have a positive effect, but I think Louis has some insight into this. |
| # / 39:32 |
Louis Aboud-Hogben |
Yeah. So, can I say something here? I think it's really important to recognize how the demand for DAI is inversely correlated with what's going on in crypto markets generally. If crypto markets are really bearish, you're going to see lots of demand for DAI as people risk off. I'm just going to post the chart that I just mocked up literally in the last five seconds. So it's going to be a little bit- |
| # / 39:59 |
Richard Brown |
You can share your screen if you like. |
| # / 40:02 |
Louis Aboud-Hogben |
But, have a look at that. You can basically see that when ETH pumps just in the last few days, which is like that orange line jumping up, that coincides with the DAI price taking a dive on Coinbase. So basically what you see is, when people are buying ETH, they're effectively selling DAI. |
| # / 40:21 |
Richard Brown |
Louis we don't have access to that graph. Do you have like private browsing session you can share or something? |
| # / 40:27 |
Louis Aboud-Hogben |
Hold on. [crosstalk 00:40:27]. Give me one sec. This should do it. So, Joe Q from the Maker team can either agree or disagree on this, but basically in December, 2018, when ETH was crashing to $80, there was so much demand for DAI that Maker's inventories basically ran dry, and that's why they lowered the stability fee to half a percent. Now the market has subsequently risen from there, and that's basically what's caused the bloating of all the market makers balance sheets. I think it's really important ... people have been talking about structural problems with the supply and demand dynamics with DAI. There are more people that want to get cheap leverage, than there are people that want to use DAI for like natural utility purposes. I think the much more significant factor is just the cyclicality of the market. So what we're going to see going forward is in a bear market, there'll be lots of demand for DAI, and in a bull market there'll be less demand for DAI because people will be selling DAI to risk on ... |
| # / 41:36 |
Louis Aboud-Hogben |
The other thing you'll see in a bull market is that as ETH goes up, and as collateral types in Multi Collateral DAI, as their value increases, CDP owners will get basically more headroom to issue more DAI as their collateral ratio goes up with the market. So in a bull market, you're going to see a lot more issuing of DAI and you're going to see less demand for DAI. So, the savings rate will come into that. But, what you saw in the market around the stability fee vote, I think that's just noise. What was actually happening was ETH was going up, which put selling price, selling pressure on DAI. So, one of the points that I really wanted to make is that market maker's inventory is really the lead indicator for the DAI price. So we really need to be ... Why are [inaudible 00:42:32] markets the DAI ... maker makes markets the DAI? |
| # / 42:36 |
Louis Aboud-Hogben |
I feel like we really need to keep our inventories in mind, because that's really the lead indicator is how inventories grow, that basically shows that we're getting uni-directional flow and something needs to change. I think there's also a broader discussion around ... with the market makers around letting the DAI price float a little more freely, so we can see these signals in the price, not just on our balance sheets. |
| # / 43:05 |
Richard Brown |
Maybe you can talk about that, because you've said three really interesting things I want to dig into. But exactly how do you agree letting the ... or how do you propose letting that price float a little bit more? How does that work? |
| # / 43:18 |
Louis Aboud-Hogben |
So, the history here's a little complicated around how we were pricing DAI, because as a kind of a message of goodwill, we were basically holding it at par when the spot rate was not at par, and we were subsequently getting arbitraged, so we had to move down with the market. Maker has marker making operations, we have market making your operations, other trading desks are trading DAI. Basically, moving our orders and moving the price in line with changes of email inventory, will basically allow the signals in the market to become obvious to everybody, right? I think what's happened over the last few months is that we've had growing inventories and that has, why that's occurred and the impact of that is going to have in the future hasn't been effectively communicated to people. People haven't recognized the significance of it. I know that, it's been brought up a few times that Maker now has an inventory of one, five, 15 million DAI. So it's gone from zero in the bare market to 15 million. If ETH sells off again, you'll see the same thing. I'm sure those inventories will go to zero. |
| # / 44:38 |
Richard Brown |
Sure, so let's try and wrap this up, because we have limited time. But, the things you're saying are all super fascinating and I want to get some clarity on some of them. So, what is the lead indicator here? So are you saying that we should be reacting specifically to ETH price 24 hours [crosstalk 00:44:53], or are we talking about inventory specifically? |
| # / 44:57 |
Louis Aboud-Hogben |
I'm not sure how to finesse it, right? But I can tell you that when ETH is falling, our inventories will be growing and that will lead indicator for needing to increase the stability fee. Now, something that we worked out here to take it into account so we can have appropriate disclosure of these data points and be reacting to them in the appropriate timeframe. Getting into a point where it's at today, we're reacting a little bit too late, which is why I've applied for [inaudible 00:45:27]. Ideally, we'd be a bit more ahead of the curve. |
| # / 45:30 |
Richard Brown |
Well that's why I'm trying to corner you into giving me a timeline or a date window, right? Because this is something that we're wrestling with, [inaudible 00:45:39] at the top of the call, or how do we remain responsive enough to implement changes when they're needed? How do we keep the velocity and visibility up? And so, with the ... purely and mechanically speaking, we've actually pulled out a Gantt chart chart in order to figure this out and we're looking at it like maybe 12 days from discussion to a vote, and that's obviously not going to work. And so we're trying to figure out what appropriate lead times are. And so, what I'm hoping that you'll do for us is say, "Hey guys, if ETHER goes up to 5% in 24 hours, we need to change the stability feet by X. Is that the kind of numbers that you're thinking about? |
| # / 46:15 |
Louis Aboud-Hogben |
Yeah. Look, I don't have firm numbers in mind, but basically we need to be acting, acting earlier. I think maybe a few, we can discuss a bit more of this on future calls when we've kind of thought about it all a bit more. Yeah. I would say that if your inventories are growing over 20% week on week, then you should be moving the stability fee preemptively, or just letting the [inaudible 00:46:46] float a little bit more, so everybody can see what's happening [inaudible 00:46:51]. |
| # / 46:54 |
Chris Burniske |
One actionable thing off this call, cause Louie and I were just discussing this before the call, and we have discussed this matter on prior Maker calls is how to get market maker data. And if we have benevolent market makers, I mean, we have Maker the Maker team itself, we have Wire, I don't know if there's a third market maker who would be willing to provide data and not necessarily revealing absolute numbers of inventory, but Louis' idea had been just showing relative changes, percentage changes. If we can get a representative enough sample, we don't need every single market maker to be giving us data, [crosstalk 00:47:37]. |
| # / 47:41 |
Richard Brown |
is that something that's under discussion right now? Or maybe something's already happening. Is there sort of [inaudible 00:47:46] relationships with other desks that you guys used to have a discussion? |
| # / 47:51 |
Louis Aboud-Hogben |
For Maker and Wire, we'll obviously be happy to disclose for other trading desks. They have no reason to treat Maker and DAI special [inaudible 00:48:01] other asset they trade. |
| # / 48:03 |
Cyrus Younessi |
There's a lot to unpack here, in that, even if we get disclosure from market maker desks, there's also having to track accuracy. Just trying to make scientific risk governance decisions based on the pure goodwill of certain large trading stakeholders is not necessarily the most desirable. I can see that it's a good tool, but ... |
| # / 48:35 |
Louis Aboud-Hogben |
I don't have the answer for how to ... This is the, really, the question is, how do you take into account what is naturally an opaque data point, but it is actually the lead indicator, right? So, I think some more like work and thinking needs to be done here. Perhaps a solution can ... yeah. I don't have the right answer, but I feel like something needs to be done. |
| # / 48:54 |
Richard Brown |
Yeah. We need to work on this. Chris, do you have a solution? |
| # / 48:58 |
Chris Padovano |
I mean, one of the ways that I've been kind of thinking about this, because total agreement that this is very useful data for determining the DAI rates, right? Is if it's possible to anonymously share this data and then have some sort of output where ... to essentially stark it or snark it, or do whatever. And then to have maybe not the end all be all data point, but just to have like a rough heuristic of something that's really useful. I mean, that's kind of one path forward maybe. |
| # / 49:34 |
Cyrus Younessi |
Yeah. I think there's a lot to discuss here. I mean, this is really a part of a much larger conversation that I think we can be happy to have on another governance call. I also think that we need to wrap up a few things before this- |
| # / 49:49 |
Richard Brown |
Yeah, I was about to help you out with that, but I just want to jump in first. I posted a link to a discussion thread in Reddit in the side. I'll do it again. This is precisely why I've been making these dual host, because a lot of really interesting things are going to come out of these calls where we need to be cognizant that we don't propose and make decisions and aggregate all the data in these calls, that's impossible. So let's get the good ideas out there and let's continue the chats in Reddit. It's obviously not the ultimate solution right now, but it's better than the one we have. So, we'll continue to iterate on that. But as Cyrus was about to point out, we only have seven minutes left, so it would be great if you can ran through the rest of the risk- |
| # / 50:30 |
Cyrus Younessi |
Yeah. I'm going to speed through this. This is probably the most important part of the call. So the governance poll has passed, I believe we're going to initiate an executive vote to actually implement the 2% change tomorrow. Is that correct Rich, tomorrow? |
| # / 50:45 |
Richard Brown |
Yeah. That's right. |
| # / 50:45 |
Cyrus Younessi |
Okay. |
| # / 50:46 |
Richard Brown |
Tomorrow [crosstalk 00:50:46]. |
| # / 50:48 |
Cyrus Younessi |
When that vote goes, the rate will be ... the stability fee will rise and at that point we will begin gaging the market data again. It would have been nice if we had seen some sort of meaningful impact purely off the governance poll, but that obviously did not happen. So, the few options ... few different scenarios to talk about. One is that the stability fee increases a rousing success, and we see convergence to the target rate quickly. That would be obviously great. I think it's fair to say that a lot of us are preparing for the fact that that may not happen. So, the two remaining scenarios is as we see them on the risk team is that, one is a small but a noticeable change, some upward pressure, but not all the way. I think if that were to be the case, the suggestion would be to kind of keep the cadence going, keep the momentum going and propose just kind of same amount, maybe same schedule. Another 2%. |
| # / 51:59 |
Cyrus Younessi |
If we see no change like we did on the last two increases and we see continued DAI volatility, like we have since we even just discussed this last week, I would imagine that there would be more forceful options at play. There's a lot of informal discussion on 3%, 4% raises, or whatever it might be. I think that would be a discussion for probably after the executive vote passes, and we can maybe have some time to gauge the data. Those are kind of the proposals that we have internally. Any questions or thoughts on that? |
| # / 52:49 |
Matthew Rabino... |
I I would sway away from accelerating the number even higher. I mean, it's already a 2% jump, ignore the metric of 1.5 going to 3.5, but really just the point that it's exponential, making it even more than that, just to be more like Novacane, just give it time. It will take effect if you keep doing 2% every two weeks. |
| # / 53:14 |
Cyrus Younessi |
Right. But I mean, imagine that it would just went from half a percent to three and a half percent, and we just saw no change whatsoever. I think it's ... You could almost think about that as one change that had no effect and potentially another 3% cadence justified. But I mean- |
| # / 53:35 |
Richard Brown |
That's an interesting point that we should probably make here is that in the last iteration of the voting, or polling and voting process, we used the governance poll to discuss what a rate increase would look like. And that is unusual, if you have clarity and how we propose the entire scientific governance process to work. Because the idea is that we present a model, or somebody ... the risking presents a model with data and evidence and like a Jupiter notebook or something, where everybody can just determine whether this first rate increase back tests correctly. But the reason why we're positioning things the way we are right now is that, we're involved in the discovery process where we don't understand ... we don't have a clear signal in the noise for our previous increases as opposed to like the price of Ethereum, or all the rest of the compounding factors. |
| # / 54:29 |
Richard Brown |
So, in order to figure out how we collect this data, we're relying on the wisdom of the crowd to a certain extent, as well as the wisdom of the internal risk team to make some best guesses. Now, obviously at some point in the very near future, I hope that it will be behind us, and it's just a matter of us looking at data and making appropriate results from that. But I think that what we might see, if there's no clear signal coming out of the next race, we'll probably investigate the same process we did the last time where there'll be a governance poll. And I think that that governance poll will probably include two options. One, conservative and maybe one slightly less conservative rate increase, and we'll let the community decide. But, the clarity around that will happen in the Reddit thread will be determined. Obviously, it's in my personal opinion, we can all discuss it, but I think three days to decide what people think is probably too long. So we can condense that down a bit, and maybe start doing these executive votes. |
| # / 55:27 |
Cyrus Younessi |
Yeah. And I think an important point was that the next governance poll could include multiple options, that we could kind of better gauge a more variety of different opinions. Yeah. And, working on the governance and the structure and the timing is all aspects that we're working on. |
| # / 55:48 |
Richard Brown |
Okay. We have one minute left. So Cyrus, was there any other- |
| # / 55:53 |
Cyrus Younessi |
I mean, I can speed through the debt ceiling a couple of minutes, I know there's some questions about that. |
| # / 55:57 |
Richard Brown |
A lot of people have hard stops. I think that we should probably take that to the Reddit thread and we'll continue the discussion there. |
| # / 56:03 |
Cyrus Younessi |
Sure. |
| # / 56:05 |
Richard Brown |
Sounds good. Okay. I want to sort of put a bow on this thing. I just mentioned it, but please, let's continue this conversation in the Reddit thread. We had a fantastic number of questions and I'm reasonably sure we got to one of them in the chat in the side. So, what we're going to do after this call, is I make a record of these. But what I would really love, is for people that asked a question that didn't get answered, to please hit up that Reddit thread and ask it again, so we can continue the chats there. Maybe in the next call we'll consider using that Reddit thread instead of the chat to attract messages or questions, so we make sure that we don't lose anything. We can pull them, the Reddit thread. |
| # / 56:42 |
Richard Brown |
This process is going to be evolving over the next couple of meetings as we figured out what the mechanics of these [inaudible 00:56:47] look like. Oh yeah, so we're at the top of the hour, so thank you everyone for joining us. Thanks Chris and thanks Nadav and the rest of the Dharma team for giving insights into their mechanisms. Thanks Cyrus for the recap. That was great. |
| # / 57:04 |
Cyrus Younessi |
Yeah, thank you. |