A Framework for Real-World Assets

I was thinking about the opposite, actually.

If we have an open framework, we would essentially have a recipe that:

  • can be improved by anyone
  • doesn’t discriminate
  • provide any Asset Originator with a clear path to onboard in Maker

We might need the experts you mentioned to:

  • evaluate individual deals
  • audit documents
  • provide feedback to improve the framework
  • accommodate a specificity in a given industry

I don’t think I tell you enough how much I appreciate you being around keeping everyone in check. Thanks for all your work.

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As long as we have a clear framework that the MKR-holders understand, we can do whatever makes most sense (even have competing ways of doing things).

I think this is the pain-point. If we solve this we are on the way to scaling.

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At scale, the idea is to have Asset Managers allocating properly, for instance in real estate.

FortunaFi is one example. FortunaFi is doing the curation of Asset Originators (Corl and Pipe currently). Each deal proposed by Corl is also checked by FortunaFi.

Yale endowment is managing $30B with 30 people. As you can see they are everywhere.
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Yale is a great example, yet their size is quite a special thing which I’d associate mainly to late David Swensen and the discipline he imposed. I recommend this episode for some great insight on him and the organization - https://podcasts.apple.com/au/podcast/charley-ellis-the-magic-of-david-swensen/id1223764016?i=1000523625184

In general, Capital Allocators podcast is a superb first-hand resource of high-quality knowledge on the institutional investment space.

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My only push back on the endowment comparison is that the core unit should be proposing frameworks and risk analysis to the MKR holders for approval, and then facilitating as outside parties engage with the DAO within those frameworks. I would not want to see any core unit or committee making allocation decisions or having discretion and/or subjectivity (to the maximum extent it can be eliminated) in the onboarding process. I think we need to strive to remove as much of the human element from our processes as is possible - not just in RWF but across the board.

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I agree. Frameworks have the advantage of behaving like software. They establish base rules for everyone to see and follow, they can be audited, and improved by anyone that cares.

Any “discretionary” method might be valid, but it requires extra trust and surveillance from the stakeholders.

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Good listen–thanks for posting.

So, are you recommending that the Maker Community create a “Yale like Committee”, that meets quarterly, and reviews asset allocation, Real-World Assets performance, and strategies proposed by the RWF Core Units/DAO? Trying to understand the correlation to David Swensen style of management…

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My Yale reference was to @SebVentures earlier point on their slim structure (roughly 30 people on 30B USD) while e.g. HMC (Harvard’s investment arm) has close to 200 people on some 40B. Swensen as Yale’s CIO was a unique person, sort of super-human who did an extraordinary job which is usually done by many more, therefore his role was central and key to the Yale’s Inv Office success over many years.

Although I believe there’s tons of wisdom in the way Yale run their endowment (e.g. their focus on Risk), I don’t think that it’s easily applicable to a more decentralized organization like MakerDAO.

Honestly, I’d need to deep dive even more into the strategy, roadmap and objectives of MKR to be able to recommend sort of role model, nonetheless - it’s a great idea by Seb to be even looking this direction for guidance as they are a well-run entity with plenty of success over the course of decades.

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CFG token is non-traded (the one that provides a price on CoinGecko is an IOU, not the token) and is not on Ethereum. And we are not dealing with Centrifuge.

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Yeah I agree, the Yale model was quite centralized. But at the same time should we looking for generating alpha? Currently we are investing on what many would call advanced assets mainly because we need people bold enough to finance thru DeFi, and are unable to understand the maturity/duration risk.

Generating alpha in TradFi should probably not be a core competency of MakerDAO.

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I believe we should create frameworks for competent managers, who believe they have the ability to generate alpha, to put their/their investors money on the line in a junior position and generate Dai at favorable rates. I think a component of this framework should be track-record, which is probably the best proxy we have for whether they’ll be a good manager.

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As someone who has been the general partner in an investing LP, this is a time-honored, pretty important way of doing these things (though the devil is always in the details of how these get implemented). For Maker is likely to be especially so, since it’s hard to make someone a fiduciary on Maker’s behalf.

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This is a blessing and a curse though. I am finding through conversations with potential clients, that while it’s frustrating to have to “pre-code” so much of the rules into the credit agreements, it’s a benefit to them to be able to operate with greater autonomy (i.e. within the scope of the agreement) once it’s signed.

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For me number one question is inflation, given currently there’s 5% in the US and stability fee is just 3.5%… So as a base some indexation/inflation protection mechanisms and then, depending on the strategy none OR more or less aggressive alpha-generation. We could get both in e.g. equity investments of the (commercial) real estate as rents are (usually) indexed annually + the assets generate some yield.

Exactly my point! Thinking hard about a framework to own assets like real-estate equity (or ETH) seems more important than finding the best AA bond to generate 0.2% of alpha over the AA benckmark.

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The good news is we don’t source our DAI from someone we must pay (leaving aside the DSR for now). And DAI are pegged to the dollar. So while large inflation lowers our profits, we are less captive to inflation compressing our net interest margin. That’s mostly because we rub our hands together and magic up the DAI, so any yield >0 can be profitable — which is, of course, not the same as paying us for the risk we assume by issuing or guaranteeing the debt in the first place.

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Central banks also use magic wands to create the papers :wink: yet their no.1 objective (sometimes no.2) is price stability/inflation, so we can’t dismiss it especially while dealing with RWA.

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Yep. That’s why we have the PSM — price stability. Maker has super powers :slight_smile:

I’ve had a quick look and it appears that the primary task of the PSM module is to keep the peg at $1, so a way to keep the volatility low or non-existent, so indeed a price stability but in a sense that it basically makes sure that at any given moment 1 DAI equals 1 US Dollar.

So on the currency level it’s a great solution, yet on an investment / lending level, especially while dealing with real-world assets, it does not help much. Let’s take the current 5% US inflation as an example, and let’s assume for easier math that it continues to be at such level for the next 10 years (highly unlikely). Let’s say in the year 2020 we invest 10M DAI into X and let’s say we will get the money back in 2030 - although what we’d get back would still be 10M DAI yet what we’d be able to buy with it in 2030 is just 50% of the goods we acquired in 2020…

Of course there’s some level of stability fee and maybe initially it was thought out as a way to keep the purchasing power in place or maybe inflation wasn’t much of a problem at the DAI’s drawing table (especially while on-chain only) but in the real assets investment space inflation is quite important and has to be accounted for.

Nonetheless, even when some folks don’t pay much attention to it, there’s a certain craftsmanship that might be developed :wink: https://twitter.com/Altcoinbuzzio/status/1403870481418133505?s=20

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