Charles St. Louis
Weekly MIPs Update
Weekly MIPs update #10 - Forum Thread
- There are a few proposals still in the Request For Comments phase. It doesn’t look like most of them will be ready for the August cycle.
It could be ambitious, but we’ll try to get them done.
The call was extremely productive. I wish I could put together more slides based on it.
Planet_X has volunteered to help join as an author for the DC adjustment proposal together with me. Hopefully, proposing it for August. It could be a little ambitious, but we’re going to work over the next six days to see if we can formally submit it on time.
MIP17: Weekly Actual Debt Ceiling and Actual Risk Premium Adjustments
Governance Cycle Review
- We had seven proposals proposed at the beginning of the month. We had the governance poll bundle and approved five. Then we saw those five proposals pass in an executive vote.
We saw more MKR participation in the inclusion polls. Specifically for MIP17 and the MIP12 amendments. We saw a lot of people voting against, to keep things out of the governance cycle bundle, which was interesting. We tended to see more negative responses than favorable responses. The ones that did make it into the governance poll had an average of 6,000 MKR, whereas MIP17 was voted against by, I think, 20,000 MKR.
I guess people are more concerned with removing dangerous things than approving wanted things. Or it could be the reflection that fewer people felt super strong about the passing that proposal.
We saw more participation in the governance bundle, though. I think 18,000 MKR voted this time around. I think it was 4,000 in June and 5,000 in May, so a valuable increase, which is good.
ETH-A Debt Ceiling Added to the Executive Vote
In terms of the final executive, it’s worth mentioning that we opted to include the ETH-A DC in the final mix executive, which is not ideal because the whole point of going through the entire cycle and having inclusion polls is that everyone knows what’s in that final executive. Unfortunately, we were in a situation where the issues with the peg and the state of the debt ceilings forced our hand a bit. It’s possible that affected how quickly the MIP proposals passed, or the fact that it passed. I don’t think it’s controversial, but we do need to be aware.
Charles St. Louis: I think we also need to highlight how unanimous the poll was. If it was a closer call between the yes and the no, then it could be a problem.
LongForWisdom: It’s potentially a problem. If it’s something that we put into the vote that didn’t go through, the cycle is controversial, and you risk throwing away a month’s worth of governance away that people otherwise agree with. It’s risky, but I agree. In this case, the reason I bundled them was because I didn’t think that it was a huge problem. We got lucky in the fact that it wasn’t a huge problem in this case.
Governance Next Cycle
- LongForWisdom: Charles already went over the RFC MIPs. Is there anything anybody’s excited to see moving through the governance cycle? Is there anything anyone thinks it needs more work? Akiva implied that he planned on submitting his Declaration of Intent on Forward Guidance for the next cycle. Does anybody have thoughts on it?
Akiva Dubrofsky: I updated it a lot. The main point is that it establishes a Vault Holder Advocacy Group, which aims to work with risk teams to provide forward guidance and more transparency on what the risk parameters are going to be. Historically, Maker has provided this fluctuating rate, which didn’t matter to people if the market was fluctuating because of the base rate or DSR. If you see my presentation on the Community Call this week, you will see that lots of people are involved in hedging the base rate. This hedging opens the question: is Maker going to be transparent with other risk parameters?
LongForWisdom: If I can summarize, I think the goal is to provide more reassurance to vault holders that the risk premiums are not going to change willy-nilly.
Akiva Dubrofksy: Exactly. We want to optimize transparency and stability in the risk premium.
MCD System Stats
DAI 24hr VWAP Graphs
Maker Vault Stats
The State of the Peg
Total Dai is around 330 million, which is pretty significant.
Dai from ETH is about 250 million.
We have about 2 million Dai from BAT.
50 million Dai from USDC-A.
20 million from WBTC.
- In the last 24 hours, we saw a jump in the amount of Dai minted from ETH, up to about 240 million.
- The WBTC supply is still capped out.
- BAT gained some utilization and then lost some utilization in that same time frame.
As far as the peg itself, we saw this mostly elevated price while a lot of the farming activity is going on for YFI. As that farming opportunity unwound, peg came back down.
We’re still seeing tremendous amounts of trading volumes for Dai during that same time frame.
Crazy price trades were getting executed on Uniswap, which we tend to see when there’s a lot of volume and volatility.
Dai price was sitting fairly steady just slightly above the peg for a couple of days, and then it started to rise again in the last 48 hours. People are concerned if further yield opportunities will crop up. Additionally, with Compound activity and yields, if those rates could persist or grow.
The ETH pool got riskier. There’s a consistent amount over the last couple weeks of Dai minted from ETH at a very low CR. There’s been a shift downward from higher CR to this mid-to-low 200-250% collateralized bucket, which is rebalancing in terms of the amount of collateral.
Even though ETH has risen in price, and that initially pushed up collateralization ratios, people did the usual: they withdrew collateral or minted more Dai to risk-adjust to that higher nominal ETH value.
- As Cyrus alluded to these liquidation walls, we have a pretty large one at about $200 ETH. At that price drop, you would see 113 million Dai liquidated. At $155 is 190 million Dai. Even at $230, you would see 34 million Dai liquidated, which in percentage terms is not quite that large, but if you compare it to what it would have been a problem for mass liquidations, say, like three months ago, 34 million is nothing to sneeze at either.
As I said, we’ve seen a tremendous amount of trading activity in the trading volume for Dai as well. This volume is something to remain aware of in the context of a lot of insane yields, risks, etc.
For DAI/ETH trades, it’s mainly been dYdX and Uniswap.
- We all know that there’s been a tremendous amount of activity on the Balancer pools, the curve farming, and now with the most recent fork of YFI pools too. That’s got a solid 62 million Dai.
If you look at Compound net value, there’s about 145 million Dai deposited.
In addition to the new YFII pool, we’re looking at upwards of 200 million Dai sitting in these farming opportunities. With a total Dai supply of 330 million, that’s tremendous domination. And that’s low-balling it too, as other sources have not been included.
We have discussed if this is going to be a lasting trend or are these short-term opportunities. I think we had it right when we said that the genie is out of the bottle, and this is a continuing trend, but for as long as assets like USDC outpace the supply of Dai. Still, Dai continues to have a premium or be very heavily used, Dai is likely going to be used for farming.
The insane yields of YFI kicked off a bit of a frenzy. I’m sure that people will try to reproduce those yields in many different forms. Whether it’s going to hit the same yields is very uncertain, probably not.
If you look at the yields that you can get with the COMP farming, that’s very likely to persist. To some extent, farming opportunities creating Dai demand is a new normal that needs to be addressed and have the community plan around.
What to do about this outside of increasing the debt ceilings each time they max out? If you’re doing that ad infinitum, you are ballooning the risk that the system is taking on, and you’re always chasing your own tail. If you continue to increase the DC, at what level will these yield opportunities no longer be as profitable? Will that actually ever be the case?
Again, this is just spurring a discussion on how Dai is being used and what risks that inherently brings.
Being Ready for a Dai Crunch
- Vishesh: Some chat comments worth mentioning around liquidations. If we have an ETH price pullback that would be problematic, we all know ETH is a repetitive beast. ETH price has been rising and rising. It has been wobbly or flat in the last couple of days. There’s a potential for a pullback, and you need to be aware that that could cause liquidity crunch on Dai. That could push the Dai price up further. Having keepers and liquidity ready to act on those auctions is extremely important.
Negative Base Rate
LongForWisdom: Akiva is saying to talk about the negative base rates. This is the first time we’ve had a negative base rate, which means MKR holders are actively deciding to subsidize risk on the Protocol in exchange to make Dai minting easier. Given the current situation, I think that it makes sense.
befitsandpiper: There are a few collaterals that we aren’t hitting DCs on. Particularly the new smaller collateral types, which would be most affected by this negative base rate.
- Charles St. Louis: If we, as a community, look at improving and prioritizing MIP17 rewrite for DC adjustments, getting more people in the discussion and having a community-built proposal to figuring the best solution, we can get it into the August governance cycle. I have a process for handling this in the future, leading to maybe the IAM. So I do encourage everyone to go to that forum thread to chime in so we can make this proposal as good as it can be. Sorry for the tangent, but I just wanted to reiterate that.
Common Abbreviated Terms
MCD: The Multi-Collateral Dai system
CR: Collateralization Ratio
DC: Debt Ceiling
ES: Emergency Shutdown
EV: Executive Vote
GF: Governance Facilitator
GP: Governance Poll
SF: Stability Fee
DSR: Dai Savings Rate
MIP: Maker Improvement Proposal
OSM: Oracle Security Module
IAM: Instant Access Module
David Utrobin produced this summary.
Artem Gordon produced this summary.
Juan Guillen produced this summary.
Tim Black produced this summary.
Everyone who spoke and presented on the call (listed in the headers.)