Episode 123: January 07, 2021
02:38: Governance Update
10:02: Smart Contracts Team Update
17:29: Oracles Team Update
26:25: Risk Team Update
33:27: Community Development + Operational Support Update
39:02: Collateral Calls Update
41:34: MIPs Update
50:00: January MIPs Submission Review
51:30: PSM usage update
55:25: Open Discussion
01:20:00: Risk in a bull market
Agenda and Preamble
- Hello, everybody, and welcome to the MakerDAO Scientific Governance and Risk meeting number 123, taking place on Thursday, January 7th at 17:00 UTC. This is the first meeting of the year. I hope everyone enjoyed themselves in their time off. My name is LongForWisdom. I am the governance facilitator for MakerDAO, and I will be moderating this meeting. We have got an agenda as usual, which I will go through briefly before we begin. We have got a few new people around, so feel free to interrupt or comment if you have things to say. We love to hear from everyone; if it becomes a problem, someone will let you know. Please do err on the side of speaking if you have anything to say.
- We’ve got weekly updates from the main domains and groups’. We’ve got the MIPs submission review. We’ve got segments that a couple of people are talking about. We’re going to have Primoz talking about risk and the bull markets. Nick’s going to bring up concerns regarding
flap auctions and the surplus buffer. I’m hoping Sam or Hexonauts will give us an update on the PSM usage. To start with, though, I think we’ll dive into Governance.
- I’ll give a brief update on the stuff that’s already happened this week. On Monday, we saw that the ETH-A debt ceiling got hit along with the USDC-A debt ceiling. As a result, Sam and Seb worked on an executive vote and proposal to increase the ceilings to avoid delaying too much. This went up on Monday and has passed, which is good. We saw the ceilings updates earlier this morning.
- We usually have me going through Governance at a Glance. Today, however, we’re going to have a Prose11 go through it, and possibly in the future as well. Prose11 is a new member. I’m assuming most people have seen him around, but if not, Prose11 feel free to introduce yourself and kick it off.
- Prose11: Thanks for letting me do this. I’m Prose11, both on the forums and RocketChat. I am a new member but diving into and loving the Maker community. Let’s walk through Governance at a Glance.
- Prose11: A three-point summary for the MKR holders is that PSM is live, and we did see some pretty big activity using it this week. That did result in some DAI price fluctuations. We’re still looking at the peg between $0.997 and $1.09. I expect as we expand, it will be looking even better. Meanwhile, DAI supply hit a new all-time high. When I wrote it, it was at 1.34 billion; now it’s even higher, so people are using the extra room in the ETH vaults there for sure. Also, MKR mooned this week, which was exciting—peaking well past $1,000. I think it peaked at around $1,250. Pretty exciting for those MKR holders out there.
Deeper Discussions happen in the Forum.
Governance at a Glance
Governance at a Glance - Forum Thread
If you can read over and vote in active threads, that would be much appreciated.
2021 mission and objectives
- SebVentures builds off the prior brainstorming post and asks community members to vote on where they think MakerDAO should be focused.
- Prose11: SebVentures posted a poll about the mission or the vision of MakerDAO, following up on a brainstorming post he had made earlier when asking the community to weigh in on where they think we should be focused for 2021.
Maker Stability Module, inspired by Aave and Synthetix
- Ratchet5000 details a new idea for generating yield for MKR holders by allowing them to stake MKR on the Maker Platform.
- Prose11: We have a cool post about the Maker Stability Module. This is an idea allowing for more yield to MKR holders through the Maker platform.
USDT has always been shady, but now they might be closer to a collapse than anytime before, yet it was added as collateral?
- BlueCat points to a regulatory requirement upcoming next week for USDT and questions its safety as a collateral type.
- Prose11: We have a post about USDT and some regulatory hurdles they’ll be facing next week via BlueCat. Check that out if you haven’t.
Road to the PSM
- Hexonaut’s post on the PSM heats back up thanks to implementation and the recent rising of the DC.
- Prose11: Hexonaut’s post on the Road to PSM has seen some increased traffic now that we’ve implemented it and went through our first DC raise. He will update us during this call.
Adjust the Surplus Buffer\
- Ultraschuppi proposes different ways to increase Surplus Buffer.
- Prose11: We have an adjust the surplus buffer signal request. We are currently sitting at 4 million, and asking whether we would like to raise that.
Adjust ETH-B line (IAM-Ceiling)
- Ultraschuppi puts forward some options for expanding the IAM Ceiling on ETH-B.
- Prose11: Next, we’ve got a signal, again, from Ultraschuppi with the ETH-B line. We are looking at that IAM-Ceiling. That’s the one we can adjust ourselves, setting the highest level and seeing if we’d like to raise that since ETH-B is maxed out again.
Manage TUSD exposure due to ownership change
- SebVentures signals different options for dealing with the protocol’s TUSD exposure after an extensive discussion in the forums.
- Prose11: SebVentures also brought us a signal request on managing TUSD exposure. I had a lot of talk about that with them changing hands in the forum and what we’d like our response to be. Give your opinion there if you haven’t already.
Adjust UNIV2DAIETH-A Debt Ceiling
- ultraschuppi proposes an increase to the UNIV2DAIETH-A Debt Ceiling.
- Prose11: This is the final request regards adjusting the DAI-ETH liquidity token vault. We’ve already hit the DC there, so this signal request is seeing if we’d like to raise it.
- Prose11: As I said, I would like to give it to hexonaut to explain his signal request for the interim DAO operating budget. It’s new and exciting and just went live yesterday.
- SamM: Thanks, Prose11. Basically, for those who don’t know, we’ve been building out the Autonomous MakerDAO operation to move away from the Foundation as the sole provider for building stuff and operating the Maker protocol. For the most part, the Foundation has been covering this through the grants program, but there are increased costs associated with things that the Foundation can’t be involved with. Specifically, the PSM is the primary example of that. We’ve been racking up costs that need to be covered. That, along with the fact that we need to move toward the DAO itself funding things in general. We figured that the next step for that is to get an initial budget. We’re proposing 100,000 DAI as an initial budget to go into a multi-sig wallet controlled by all the mandated facilitators. The signal request will be up for two weeks, and the plan is to put that to a governance vote at the beginning of February because, at that time, we will know who all the facilitators are. There are currently three going through the monthly governance cycle. This will go forward if we can get at least three facilitators signed on and then slowly move away from the Foundation.
- LongForWisdom: To clarify one thing there, Sam. Typically, the keyholders would be those mandated actors in the Foundation, correct?
- SamM: Yes, it’s everybody I listed in the thread. It’s not all facilitators, but it’s the ones in the thread; you can read it for yourself.
- Prose11: Awesome. Very cool. This is my first time doing the Governance at a Glance, so go to the forums if you have any feedback, comments, or ideas. That’s pretty much it from my end. Thanks for letting me do the shout outs.
- LongForWisdom: Yes, thank you very much, Prose. That was awesome. There was one last thing I wanted to say concerning the Governance front, which is that there’s probably going to be several polls on Monday. I think, possibly nine or ten. Look out for those next Monday. Specifically, a couple of signals, inclusion polls for January, and a couple of others with oracle stuff as well. All right, I think that covers Governance for the time being.
Smart Contracts Team Update
- Happy New Year, everybody, also welcome, Prose. That’s great. It brings a tear to my eye to watch the DAO growing up, starting to stand on its own. It’s a very, very exciting time. Usually, I go over last week’s stuff, but I guess I’ll go over last year’s things.
- In December, on the 18th, we passed the UNI V2 DAI-F and AAVE collateral type. We adjusted some rates. We also whitelisted Gnosis in general into the oracles. Then the community passed the PSM for USDCA on the 20th. Or at least that’s when the executive went live. We did DC changes for ETH-A, USDCA, and the PSM USDCA on the fourth of this week.
- As for everything else, there are pretty much no other reports from last year. I think we’re just going to talk about where we’re headed. Hopefully, in the coming week, we should get MIP21 in Kovan, either this Friday or early next week, depending on how things go. For those of you that need a refresher, that’s the real-world assets for 6S. We should be expecting that next Friday. That’s exciting because that’ll be the first Real World Asset use case on the platform.
- We’re still looking at the Dss.exec lib changes. We’re hoping to make those updates before getting ramped up on collateral onboarding because it’ll radically simplify collateral onboarding. We have some domain teamwork that still needs to be reviewed. MIP14, which is the DAI protocol transfer, should probably get on that one pretty soon to make sure it stable since it sounds like you guys might be using that to fund some action. Then MIP17, MIP25, and MIP30 still need updates. Actually, sorry, MIP17 was the debt ceiling. I think we’re okay because we went with the DC instant access module. So really, we need to look at the flash mint and the Farmable cUSD adapter, the CropJoin.
- The end of last year was aggressive; a lot of people got pretty burnt out. And over the tail end of last year, our community lost some smart contract engineers and the Foundation because of various other market opportunities. We were hoping to pace ourselves a little bit better; we’re down to bare bones on expertise for the system. Therefore we’re hoping that we could rate limit until we get some more people trained up to around four collateral additions a month and one MIP a month. We’re hoping to take one of those weeks and make it a community week. That would be any time changes that might need to be made to the PSM; Any changes at all. We would slide anything the Foundation can’t touch into that week. Also, the community would run its executive. Meanwhile, we’d be able to work a little bit more on that tooling and trying to get stuff a little bit more efficient. That’s our hope and expectation for this coming year until we can ramp up on more people.
- There was a discussion yesterday as the MKR price was going up. Long was thinking should we have our eyes on governance attacks? And that got me thinking about precisely what governance attack to do. And we have a governance attack vector that would not be great. Specifically, anyone that took control of Governance right now could instantaneously turn on liquidations for stablecoins, and we think that there’s no need to do that. We don’t need to have those things instantaneously accessible. We know that stablecoins don’t have liquidations on; we don’t plan on turning them on. There’s very little reason to have them come on in a hot emergency. I think that what we should do is remove all of the stablecoin vaults from the instant access module to turn liquidations on and off. And if we do that, that’ll reduce the attack surface of governance attack. I’ll try and make a forum post about that to throw it out there. But I think you could expect that in the coming weeks executive. We’ll likely do that then.
- With regards to the PSM, I just wanted to make a general comment. I think Sam is working on a UI for the PSM to make it more accessible to everybody. But, if the PSM were under the Foundation’s control, we would still have a product manager pushing this forward. Because really, what’s happened is we’ve added the PSM, and it’s at the database layer. It needs documentation so that people know how to integrate with it. It requires a UI so that it’s more accessible to people. If we were to end up doing this, the community should think about not just the fact that we got the PSM out there, but think about the chain of everything that still needs to happen. Other stablecoins would need to be added to it. And the old stablecoins would probably need to be liquidated into it. There’s still a lot of work there. I’m very proud that the community was able to have that autonomy and do their own thing. But remember, there’s still a lot of work to do. And so, if anyone wants to take the lead on pushing that forward, I’m just giving you some general ideas of how we would have done it in the Foundation if we were in control of something like that.
- Finally, I think we could probably talk about this later because you guys will bring it up. I think Nick was going to speak about
flap auctions and whatnot. But I’ve got a couple of comments to make on the
flap auctions risk and the
flip auctions. I’m going to defer, and we’ll do the other domain updates. And I’ll come back to this when we’re talking about those topics.
Oracle Team Update
- At the tail end of last year, we onboarded the DAI-ETH Uniswap LP token. We had set the three million debt ceiling fairly conservatively because we were not entirely confident in the contracts’ security because it was brand new. The debt ceiling for that got filled up extremely quickly. That validated our thesis that there is a lot of demand for leveraging up on LP yields. Given that we’ve proven that LP tokens should be a core focus of collateral onboarding going forward. And there is a lot of potential for stability fee generation there. Especially the risk front as well. It means that you can have LP pairs against stablecoins, which are less volatile than ETH. That means that they’re almost by definition less risky than ETH from a price perspective. It also means that the system doesn’t have to hold all those stablecoins as well. We hold them through Uniswap, so the blacklisting risk is a little bit lower there, as well.
- There was also a forum post over the holidays saying the debt ceiling’s full. Let’s raise the debt ceiling. I disagree with that. But not for the reason you’d think. I think the fact that we’ve gotten through the holidays unscathed on that Oracle is a sign that we can increase our confidence slightly, but it’s not a ringing endorsement. Therefore we need to get a formal audit from a reputable auditing firm. Not something like QuantStamp. Something really good like a Trail of Bits, an EY, a PwC or a DappHub, or something. Until we have that, I don’t feel comfortable starting to raise the debt ceilings by large amounts. It looks like there was one option to raise the debt ceiling of DAI-ETH to 10 million. That seemed to be the polling option that was getting the most traction, or maybe it was 12. I think it was 10. But instead, what I want to suggest is that we optimize for this medium-term picture where as soon as we get the audit back, and everything checks out. We can crank up the dial on these. What we don’t want to be is in a position where, after we got the audit back, we need to go and onboard all these LP tokens. It would be great to keep the debt ceilings depressed for now, but just start onboarding more LP tokens. When the audits come back, we just crank up the dial while being in a great spot.
- That being said, there’s already a polling vote that passed to onboard USDC-ETH. That will be coming up in an executive on the 22nd. And in the interim, there will also be a polling vote for WBTC-ETH. Therefore, potentially, we could be onboarding both LP tokens on the executive on the 22nd. Those would be the three largest Uniswap token pools from the last time I checked.
- Where do we go from here? Well, we get Sushiswap LP tokens for free. And I don’t know if you guys have been keeping track, but the liquidity in Sushiswap is starting to get enormous. Also, since SushiSwap and Uniswap are just the same contracts, we get those for free without making any changes. Therefore we can start looking at Sushiswap LP tokens. We can start looking at The Curve LP tokens. We can start looking at Balancer LP tokens, maybe even 1INCH ones, if they start keeping serious volume after their 1INCH farming stuff expires. That’s on the LP token side. That looks like everything is trending in the right direction, as we expected. That’s good.
- In terms of governance updates, we have ten whitelisting proposals that will go up next week. There are five for Gnosis and five for SetProtocol. Those are both feeds in our Oracle network, and they’re dogfooding practice what you preach. That’s good to see.
- LongForWisdom: A quick governance note on that. We’re probably going to bundle those polls. The Oracle whitelisting proposals for Gnosis and SetProtocol, just because I don’t think there’s going to be a lot of contention around them. I think it can make some sense to whitelist the groups together, whitelist the Gnosis ones and whitelist the SetProtocol ones. We’re going to do that, and hopefully, no one’s going to complain.
- Nick: There are also 17 pending Oracle whitelisting proposals from DYDX for basically creating Starkware L2 Oracle’s for them for their upcoming release. If you add those two together, that’s 27 total pending Oracle requests. I think we’re finally starting to hit our stride with respect to Oracle’s as a business that the DAO owns and can earn revenue from in the future. So I think that’s all exciting.
- BrianMcMiachel: If I can jump in here real quick. I did come on to the forums and pumped the brakes myself a little bit on the LP Oracle debt ceiling raise. I just want to mention that we did some additional testing on the smart contract side this week, and a lot of our concerns are assuaged. But I do want to second Nick’s desire for an audit there. But as far as adding new tokens. Let’s go ahead and do that. The other thing is, I think somebody else will probably mention our current surplus buffer. If we were to raise that surplus buffer, I don’t think we would have a problem necessarily raising the debt ceiling on the LP tokens to be just short of that. I think that’s our limiter at 3 million right now. We’ve got a 4 million DAI surplus buffer. Raising the one would allow us to more comfortably raise the other. I am just throwing that out there.
- LongForWisdom: Yeah, thank you, Brian, and Nick. And, Nick, can I ask if there’s been any progress with the Centrifuge Oracle report?
- Nick: I just started it this week. I’ve been very clear that we were swamped up to the tail end of last year and that it would be my priority coming back. So I’ve been working on that and should be out probably before the end of next week.
Risk Team Update
- Regarding collateral evaluations in the last few weeks, our two externals analysts finished tBTC evaluations during the holidays. It actually may happen that this may be the first collateral that we red light to onboarding it. I won’t go into full details now about the reason, but there are all sorts of liquidity problems and an outstanding tBTC. The evaluations show that we would like to probably onboard it with less than a 1 million debt ceiling. We said we might evaluate it later when metrics approve and onboard it afterward. This evaluation should be online soon.
- We promised another one is the cUSDC CropJoin, so MIP30 so the risk assessment when we came to a point to study the risk parameters or propose them. Compound recently released this new patch. This patch lets Governance more actively decide how comp rewards would be distributed for particular markets. This makes our job a bit harder because when we decide on stability fees for cUSD, this would typically be a function of farming yield. Still, because of this implementation, the compound farming yield could be adjusted by the Governance easily. It would need to react by potentially setting a different stability fee. So that is why we are still figuring out how this would work in practice. Is there any hidden risk, and we will release details about it in the report?
- Monet-supply from our team should make a signal request thread soon about potentially increasing
dust amount again. The recent increase in ETH price increased gas prices significantly, and this presents a problem, of course, during collateral events when people want the leverage and the costs are too high. There’s an additional problem if you have liquidations. There may not be bidding on small vaults. The current value is 500 DAI, but yes, unfortunately, we may need to increase it. Stay tuned for this signal, and please vote.
- Another thing that our new member Andy has been working on is refreshing our Maker portfolio value at risk(VaR) model. We haven’t updated that one for some time, but that was mostly because we were more focused on measuring expected loss for individual vaults. This helps us define risk premium and which we later use in the rate setting group. Now, when maker debt exposure is growing fast, we may want to have a clearer picture of the overall Maker portfolio’s tail losses. In other words, we want to measure portfolio evaluated risk correctly, which means we need to include correlation metrics and to measure worse case events and so on. I think this is great is because it should also help us more appropriately define surplus buffer or help us mitigate risk in different ways if we see that our exposure is becoming too risky. I think Andy will show us some numbers soon. This will also be beneficial, especially now because we have this surplus buffer topic and, you know, talking about risk mitigation during this bull run.
- Lastly, yesterday rates group released the rates proposal, so please check that report and provide feedback. Just a short sum-up of the report, we’re proposing a great increase for both ETH vaults and a slight decrease for BTC vaults. A few rate decreases for vaults where either liquidity metrics improved or depth exposure decreased. The decision is mostly based on a competitive market environment. We also consider risk metrics and the recently increased usage of ETH vaults then we have a real-world side of risk, and I’ll let Sebastian update it here. Before that, if anybody has any questions, please ask.
- Sebastien Derivaux: I’ll take it from here. From the real world assets side, we made some due diligence progress on New Silver and ConsolFreight, checking that the legal documents are similar to what we have discussed with both asset originators. We still don’t have a legal team on Maker, so we check the document, not lawyers. Maybe Marvin will be able to help with that. I will have to check with Amy. For 6S, we are waiting on the contract. I’m quite sure Matthew is quite busy setting up the infrastructure in the real world. We are already working on some new collaterals or at least doing the first pass on new collaterals, which our discussion community called yesterday. Lastly, we are working on some documentation to make some concepts easier to understand. Sometimes, it was a bit experimental. If you have any questions, feel free to ask.
- LongForWisdom: Any questions? I’d love to see some more documentation that helps explain some of the concepts you guys are dealing with.
- Sebastien Derivaux: It’s quite complicated, and we are trying to build the concept from the ground up and try to make something generalized that can work for any real-world asset, so it’s a bit complicated.
Operational Support Update
- Hey, everybody. 2021 no doubt, is a big year for the DAO operationally. This quarter, we’ve already seen a brand new pace of activity and the community taking action towards a truly self-sustaining DAO in terms of operational support.
- A big point that I wanted to highlight was around this discussion about increasing the surplus buffer for DAO expenses. I’ll summarize a little bit of the activity happening in the forum already to support that statement of increasing.
- First, we have the interim funding that Sam has proposed, as well as there is a technical MIP for the KEG to do actual payouts as well that Sam is working on. And then, with Sam’s interim funding, he did mention a multi-sig, and that process, a non-technical MIP, will be coming soon from Prose.
- SebVentures also submitted a team, precisely Real-World Assets, funding experiment. It highlights what it would look like to be funding a team and what some of the expectations might be.
- All this is happening now while a more formal domain team funding structure is coming. One main point that I would love to highlight is Juan is in formal submission for his operational support facilitator role. I would highly encourage you to vote on that when the time comes, as he’s been instrumental in supporting a lot of what’s happening on the operational side.
Community Development Team Update
- Then for community development. During the break, I’ve been thinking a lot about how information moves and surfaces in our community. A big piece of that outcome is I’ve been working with Anna, who does our snippets, and David from our community in rolling out a master resource list of projects and teams in the Maker community. There’s a lot. It’s over 60, I believe. This will give an overview of everything that has been happening and everything that is still happening. This list includes working groups and things like that. And one of the things I would also encourage is how we’re thinking about making this useful and maintainable. One of the things that I often see in projects like this is people tend not to update it, and we don’t know the status. Therefore, we’re working on making it simple where anyone could contribute to it. So that’s it for us. Any questions?
- David Utrobin: I have a quick question about the distribution of the budgets to different teams and the evolution of that at Maker. In October, I know Long posted a thread called
Flapper Distributor that proposed a mechanism for doing that. And I know Seb also posted a MIP proposal for something called the Strategic Reserves Fund. And now, this week, we saw a temporary multi-sig happening. Specifically, I was curious about the
Flapper distributor. Is there any plan to formalize the spec and bring it into a MIP and solidify the whole vision for distributing funds from the surplus buffer to more specialized instruments?
- SamM: I can speak to that. The
Flapper Distributor is the KEG. The KEG is meant to be the implementation for the description of the
- David: Okay, got it. Got it. Yeah, that that makes a lot of sense. Thank you.
- LongForWisdom: I think we had the KEG developed separately. And it was always the same as the distributor, which was relatively easy to combine the functionality.
- David: So the Keg is documented where exactly? Is it in its own MIP? Or is it part of it? Yeah, I’m just curious where I could read more about it.
- Christopher: The Keg started as a hackathon project and the Foundation a while back? I guess we can find that code. But maybe Sam knows more. He’s working on it right now.
- SamM: So Lucas and myself have been working on that since the hackathon project. It’s since been adjusted to include the
Flapper distributor. The Keg itself has two pieces of functionality. It makes streaming payments, both from the
Flapper and just fixed-rate amounts that can come out of the surplus buffer. So it’s just a general-purpose tool we can use to pull funding for whatever.
- David: Got it. Super exciting. Yeah, thanks for the update.
- SamM: Oh, yeah. And with the MIP, I’m working on the MIP for that.
Collateral Call Update
- Yesterday, we had a call, the first one of the year with Real-World Assets. We had Peoples Company; It’s quite exciting and mainly concerns farming. You can check it out. It’s already on YouTube while Pablo works on the notes, which should be up soon.
- Next week, we’ll have the xDAI team. Igor and Andrew from the xDAI team will be here explaining a bit more about how it works and discuss their application for the stake. As a special guest, we’ll have Patricio from Pope the proof of attendance protocol. They will be explaining how they migrated to xDAI, different advantages of L2, etc. So we’ll see how that goes. So that’s it regarding the calls.
- I wanted to echo a bit on what Chris has been saying about burnout. I think it’s a bit also about managing expectations. Different partners and different projects want to interact with Maker, so we need to realize how much effort is being put by the smart contract teams, risk, and Oracle’s mainly to get these things done evaluated and make sure that everything is safe. So it’s about communicating a bit better. The effort that this takes and making sure that we don’t disappoint anyone. Again, if we managed to communicate better all the effort and everything required from our side, it’s not just a plug and play. We can make sure that no one is disappointed at the end and that we can grow at a pace that we’re comfortable with. Those are my two cents. I don’t know if there are any questions, I guess not. Amy, Nick, and Primoz covered pretty much everything.
Weekly MIPs Update #23
- David: I have the pleasure of doing the MIPs Update this week. I prepared a few slides to make it a little easier to follow along. First of all, happy new year to everybody. I should introduce myself; my name is David Utrobin. I’m one of the community development leads at the Maker Foundation. I’m also a MIP editor in training, so I’ve been working with Charles over the last couple of months and getting my feet wet with MIPs. We are entering our first governance cycle for 2021, which is the January governance cycle. The first week is dedicated to formal submissions. I think formal submission officially closes tomorrow on Friday. Still, I’m glad to announce that all of the MIP and sub proposal authors that said they would formally submit their MIPs have already done so. To give a reminder; after a MIP or sub proposal is formally submitted the governance facilitator does the submission review. Inclusion polls happen the following Monday, which is going to be this coming Monday, January 11th. You will be able to, as an MKR holder, vote whether these should be included in the governance poll and the executive vote, which is a bundled version of all of these MIPs and some proposals.