Over the past months, Maker governance has matured at a rapid clip. From collateral on-boarding to formalized MIPs, there’s been more activity on the forum than ever. Incredibly, we continued this progress in light of unprecedented exogenous events, both in crypto (yield farming, the market collapse of mid-March and exploding Dai demand in Argentina) and in the real world (global pandemic and near world-wide economic recession). The Community’s and the Foundation’s efforts to deal with these issues and find the policy “sweet spot” for keeping the peg tighter to $1 has weighed on everyone but also driven innovations, like the Peg Stabilization Module.
The Foundation only began developing the PSM concept after seeing a number of community ideas that proposed variations of the basic design. It was an exciting potential development, and was seen as a powerful tool the community might urgently want to use in the context of defi yield farming impacting the Dai peg.
Since then a number of factors have pushed back against the PSM concept being urgently implemented:
- The community voted against rapidly onboarding a PSM, instead choosing to allow more time for discussion and understanding of the risks.
- The impact of yield farming on the Dai peg turned out to not be as severe as some had predicted, and Dai generation started picking up.
- A lot of forum posts suggesting different variations, indicating that it might make sense to do a deeper review of the core idea, and the crypto-economic implications of different design variations.
After weighing these factors, alongside the recent changes in the evolving regulatory landscape, the Foundation has decided to stop building, designing or technically supporting the PSM. While it is an exciting idea, and potentially a powerful tool for Maker Governance, we believe that the unique status of the Maker Foundation in the ecosystem (as the leading entity that developed and launched the Maker protocol), means that it wouldn’t be worth the risk for the Foundation to develop new features for the protocol that weren’t part of the already completed development plan (SCD and MCD) and aren’t part of the long-established roadmap to dissolution (Self Sustaining MakerDAO roadmap).
Rather, we believe that the best use of our efforts before the Foundation dissolves is to focus on the final roadmap and problem spaces outlined in MIP1. This both includes supporting growth by enabling real world assets as collateral for Dai, and it also means supporting the community with the governance tools and frameworks it needs to become fully self sustainable and self reliant.
In particular, solutions related to funding from the protocol and community controlled protocol development will help the community achieve full control over what features it wants to develop and onboard to the protocol.
What can we do about the peg without PSMs?
PSMs could be a powerful tool for Maker governance to directly onboard stablecoins as collateral for Dai, but just because the Foundation will not develop or support PSMs doesn’t mean that there aren’t tools available to deal with the peg in the short term. Governance may consider setting high debt ceilings and low liquidation ratio risk parameters for stablecoins after the auction 2.0 redesign is released, for instance. The Foundation also is accelerating the liquidation redesign, which should provide the community with more options when it comes to stablecoin risk parameters.
Of course, the community can also consider and determine its own path of action regardless of what the Foundation says or does.
Does this mean the Foundation decides what the protocol can do?
No, not at all. The Maker Foundation doesn’t control the Maker Protocol or the Maker community (remember: the Foundation is legally prohibited from ever voting its MKR). Nonetheless, it would be silly to ignore the Foundation’s unique role in the ecosystem, given the successful launches of both SCD and MCD. Precisely because of that unique role, the Foundation should further withdraw from spearheading new features outside the existing and limited roadmap and the problem spaces outlined in MIP 1. Indeed, it validates the plan to do away with the Foundation and move to a new model where the DAO sustains itself and doesn’t look to the Foundation or any other external entity to advance the protocol.
Fortunately, the community is already quite self-sufficient. There are officially elected domain team members that do not work for the foundation, and the community continues to bring forth new collateral types through MIPs on a regular cadence. The community also has MIP13 - declarations of intent - as a tool to signal for bounties to develop features that the community wishes to implement.
What will the Foundation do next?
As noted above, a key short term priority will be accelerating the liquidation redesign to give the community more options for stablecoin collateral risk parameters. Additionally, the foundation will speed up the release of frameworks and MIPs for domain teams and community-owned resources, to build further on the self-sufficiency that already exists, and enable the community to move quickly and take over any remaining responsibilities that presently lie with the Foundation.
In the longer term and until its dissolution, the Foundation will focus the vast majority of its resources on bringing real-world assets as collateral to the protocol. We believe that this is still the only long-run solution to the peg, and, like the Ethereum Foundation with Eth2.0, we are determined to see this new revolutionary project through completion.
We will soon follow up this post with a description of potential specs for bringing on real-world asset collateral and questions we think a prudent issuer of real-world asset tokens should ask themselves to prepare for review by the MKR Holders and potential inclusion into the Maker Protocol. I’m sure though that the community can and likely will develop its own approach to real-world assets as well.