February MIPs Submission Review
- Thank you, David. Since we’re back to doing governance cycles, I need to do the MIP submission review. I will briefly go over the same MIPs that they just went over. We have many informal submissions because there are many MIPs this month in the formal submissions. We’re planning to group some of them as sets based on ease of use since they are functionally related. The first group will be keg MIPs, the streaming payments for the keg and streaming payments module. We’re going to group the core unit framework MIPs and the amendments directly related to that. We have four separately; we have the terminating module, liquidations 2.0, parameter proposal groups, Maker DAO multisig wallet management. Some of those will go in individually. We also have the sets of sub proposals from each reward finance, risk, and gov-alpha. They will go in a group link of three groups, one for each of those core units. They all meet their requirements.
Other Presentations and Updates
- Let’s start with monthly results. As you can see, we’re making great progress. Let’s talk about net interest income. The difference between the stability fee we’re earning and DSR is up 92% versus last month, which is insane. This is thanks to loan demand and higher stability fees proposed by the rate-setting group.
- Another interesting item is the net trading income, which is the PSM. It’s increasing as well, which means it’s starting to become a new business line for Maker. The only drawback is that currently, we’re only getting USDC inflows but no outflows. It is not perfect, but maybe this will soon change.
- Next is net liquidation income. January was quite volatile because there was a lot of liquidation. However, this was nothing compared to February. Let’s hope that it doesn’t repeat in March because we made a lot of liquidation money.
- Regarding the workforce expenses, it is getting bigger and bigger and will continue to increase. This month was the first interim multisig of monolithic expenses mainly related to PSM. There was also gas asked for smart contract development. It may have been an executive of last week. Nonetheless, there was an incoming donation from the donor. If many people want to give back to the Maker DAO, you can turn in your DAI to the interim multisig. Net income is increasing, and recurring income is a bit less because most of the increase was in trading and liquidation income. Those are not used in the recurring income.
- MKR price was not flat but instead showed a good increase, however not as much as the rest of the financial results
- Someone: Sebastien, what did you say the target was for that CET-1 in banks? What do they typically shoot for?
- Sebastien Derivaux: Banks should aim for 8%, but I wouldn’t make any comparison at all between those two numbers because I didn’t check insolvency in how to write the numbers. Obviously, when they made the norms, they weren’t crypto-asset loans. Therefore, it’s difficult to estimate, but you can try to use the leverage ratio. It should be 3% for banks. We’re still a lot below that, but I don’t think our business is as risky as a bank. I’m not sure if that’s something we need to work on. I try to see the brokers’ model, such as interactive brokers, because they have the same balance sheets. They are making a lot of loans backed by stocks and bonds. Therefore, it’s quite the same issue. It wasn’t evident what models they were using, and there is not much to report. Still, obviously, their leverage ratio was higher. There is legislation in the US that if you want to be a broker and give your customers loans, you need to have a leverage ratio of 3%.
- Sebastien Derivaux: Does anyone have any questions or statements to make around this presentation?
- Matthew Rabinowitz: Yeah, oracles make up more of that just because of the cost of gas to update them.
- Sebastien Derivaux: Yeah, I’ve asked Nick about that just before the meeting. He didn’t have a clear view, but it could be in the ballpark. Obviously, it depends on the price of the gas, and therefore it can change dramatically.
- Matthew Rabinowitz: If the amount of DAI outstanding was ten times greater, how much of these costs would be ten times higher, or what percent they are?
- Sebastien Derivaux: Let’s say ETH and gas price remains the same. Expenses could end up being the same. Obviously, that doesn’t work in real life, but you increase the expenses because you have more income. In conclusion, it’s possible.
- Matthew Rabinowitz: My point is it’s a good exercise for every core unit team to ask for the budget today and ask what if everything grows 10X or another 10X. In those extreme cases, how much budget will you need to sustain? Oracles are probably one of the greatest examples where their budget really shouldn’t change unless their business model changes. Marketing and real-world finance may change, but it’s a question for each unit.
- Sebastien Derivaux: It’s super early because we don’t have all the core units proposed yet.
- Juan: Matt, I was going to say the opposite; an oracle is the only one expected to go up if DAI is backed by other types of collateral types relative to smart contracts. It could go up to an estimated multiple of 3X. That would be healthy, at least for Brian and Chris, and the rest could grow slightly more. Still, I would expect the oracle parts to be the one that grows the most.
- Matthew Rabinowitz: Yeah, the operating expenses of the protocol aren’t that much. The cost is the oracle itself if we keep everything the same. Obviously, we don’t want to do it because we want to grow and do awesome things.
- Juan: Not so much yet.
- Brian McMichael: I want to mention that smart contracts numbers came out. They factored for 14 devs tops, giving us space to add 4 or 5 new ones. If we do wanna grow past that, the plan is to prepare a package like one of the headcount packages that we can reintroduce to governance to approve at that time.
- Sebastien Derivaux: Yeah, it’s a good point. It’s only the budget I took. Maybe some budgets have some room to grow.
- Payton: I’m taking a step back to the leverage ratio stuff. In your assessment, are we in a good spot? We’re about halfway to raise the surplus buffer to 30 million. I’m also curious if maybe including strategic reserves would help that number at all?
- Sebastien Derivaux: Yes, that’s a good question. I didn’t find any clear answer yet. Actually, I was more focused on the liquidity side because there are two risk issues when you’re doing banking. One is solvency; when your surplus buffer is negative, that’s not good. You’re minting and unsure about the feature and liquidity. When you go to your bank and say I want my money back, you can end up bankrupt. My first assumption was that it was impossible in Maker because, obviously, DAI is not redeemable for anything except at emergency shutdown. I found out that it’s not correct at all. You can’t redeem DAI, but what happened is that price of DAI change when you look at your bank account. You’ve got one dollar in your bank account. It’s always one dollar. There is not one dollar beyond that because banks don’t have this one dollar. It’s a loan to buy a house or anything else; usually, they have some liquidity reserves. In our case, liquidity reserves will be strategizing assets, mainly the PSM but other vaults, if you convert them to the PSM. Having this buffer is a curse and blessing. It’s a curse because we take the regulatory risk of USDC. It’s a blessing if all the DAI farming stops tomorrow and most people using DAI to farm want to go to USDC because they prefer USDC for any reason. There will be a lot of redeeming, and this buffer will help us to take the heat. We don’t have to increase the stability fee in a rush or stuff like that. Even if you increase stability fees, it takes at least 2 days to be increased, probably more because the price of DAI can go below one dollar for maybe one week, which is not very good for our customers. Going back to the solvency issue, it’s difficult to define a good number; what is safe, or what is not? I think it truly depends. At 1%, we will be safe if regulation 2.0 is solving most of the issue, and maybe we’re even safe at a 25% alpha percentage. I don’t know. I don’t have the number on top of my head. But if we had 1% last year, we would not have met the Black Monday event. However, no promises.
Links from Chat
Common Abbreviated Terms
CR: Collateralization Ratio
DC: Debt Ceiling
ES: Emergency Shutdown
SF: Stability Fee
DSR: Dai Savings Rate
MIP: Maker Improvement Proposal
OSM: Oracle Security Module
LR: Liquidation Ratio
RWA: Real-World Asset
SPV: Special Purpose Vehicle
- Artem Gordon produced this summary.
- David Utrobin produced this summary.
- Gala Guillen produced this summary.
- Jose Ferrari produced this summary.
- Everyone who spoke and presented on the call, listed in the headers.