Episode 153: August 5th, 2021
01:10: Governance and GovAlpha CU Update
03:08: Protocol Engineering CU Update
07:44: Risk CU Update
13:05: Forum at a Glance
17:18: Oracles CU Update
23:06: Real World Finance CU Update
26:31: Growth CU Update
33:37: Content Production CU Update
38:05: Sustainable Ecosystem Scaling CU Update
42:33: GovComms Core Unit Update
45:46: MIPs Update
52:50: MakerDAO July Financial Report
01:10:02: B.Protocol Declaration of Intent Primer
Agenda and Preamble
- Hello everyone, and welcome to the MakerDAO Scientific Governance and Risk meeting number 153, taking place on Thursday, August 5th at 17:00 UTC. My name is Payton Rose; I go by @Prose11 on the Maker Forum. I am one of the Governance Facilitators. I’m joined here by a bunch of awesome people interested in MakerDAO and how it’s running.
- We like people to get involved and ask questions or comments, so please, do not be shy if you have something to say.
GovAlpha Core Unit Update
GovAlpha Weekly Update
- It has been a busy week for us regarding our Soft Launch of Voter Delegation, which happened on August 2nd. You can now view delegates in the voting portal. Also, we hosted the second Meet Your Delegate call on August 4th.
- We have our first draft of our combined Q4 2021 and Q1 2022 Budget complete, which will be in RFC before the September submission deadline.
@Sebix has continued his project for tags on the Maker forum, intending to figure out how to make them more useful, better organized, and less sprawling.
Protocol Engineering Team Update
In summary, headline priorities:
- We’ve got the ClipperCallee implementation for SushiJoin. This extends to Keepers.
- DssVest implementation for transferable tokens in general.
- There’s a DssCharter for Institutional Vaults in parallel with forum post discussion coming soon.
- The entire team agreed to focus on the G-UNI contract and oracle work to support collateral onboarding.
- D3M: Direct Deposit Module - useful later when rates increase. We will focus on D3M sometime after G-UNI.
- Executive Spell Postmortem posted (re: correct raising DC on RWA002-A).
- July Month in Review posted.
- Institutional and Long Term Vaults proposal posted.
- PR checklist for external teams to add collateral to mainnet & Kovan.
- ChainSecurity published Optimism Dai Bridge Audit, no errors…first time ever.
- We had a successful Optimism test spell cast on Kovan by relaying messengers across the bridge.
- Sam joined the team full-time.
- MATIC will be up on one of the coming Executives.
- Reminder for Keepers: make sure your gas setup is working correctly now that the London hard fork has happened.
- We’re laying the groundwork for the Georli transition for the testnet.
- Payton Rose: Brian mentioned that MATIC is looking pretty good for the next executive.
- Chris: From our end, this is just a straightforward collateral onboarding. We are waiting on the mainnet Oracles to have enough price updates for them to be comfortable with it to go.
- Chris: Also, Chainsecurity published the Optimism Dai Bride audit, and they found no errors, which was the first time that we have gone to audit without any mistakes.
- Payton Rose: Congrats, quite the accomplishment.
- Someone: Maybe they are getting lazy, but Chainsecurity has been some of the best auditors in space, which means a lot.
Risk Team Update
- We published a post that analysis how lower LR Maker Vaults could affect risk premiums for each Vault. Based on simulated results, we Suggested decreasing LRs by a maximum of 10% for second-tier Vaults, which have 175% LR, and decrease LRs by a maximum of 5% for leading Vaults such as ETH-A, renBTC-A, and UNI LP Vaults. We suggest no change in LR for ETH-B due to the OSM delay risks.
- Caution: fee compensation is currently low. If we decrease the LR, the spread between the risk compensation of expected loss will decrease. The surplus buffer is well set to manage this risk. However, the cost from Core Units is also increasing, and the Risk Profile Portfolio can change very fast; risk premiums can become high. The idea is to wait for community feedback to proceed with a signal poll to decrease LRs.
Offboarding Vault Types:
- Began working on a plan for how to offboard unprofitable Vault types. We will likely propose a combination of decreased DCs and increased rates or LRs to force these Vaults to unwind or liquidate with a zero penalty fee. Oracles are maybe also thinking of lowering the frequency of price updates. The debt of these Vaults types in aggregate measures up to 5.5MM. However, there are plenty of smaller users utilizing it, and therefore communication is very important when we begin.
Vault Risk and Behavior:
- We began working on Institutional Vault risk evaluation, which will be different since we now know the potential counterparty. It will be a report on past Vault management behavior and other characteristics.
- We are proceeding with the Vault user behavior dashboard. We are currently estimating how many Vault users are protecting their Vaults through DeFi saver and similar tools. We also managed to get good farming data on Dai by determining what amount of Dai debt from particular Vaults is being directly utilized for secondary lenders for liquidity mining purposes.
Risk Core Unit:
- We are writing a sub proposal for MKR compensation for our Core Unit, which will be included before the deadline.
- Someone: Circling back to Institutional Vaults - does that also include the analysis of regulatory risk?
- Primoz: Yes, ideally, we need a legal Core Unit or some kind of compliance. We try to cover as much as possible but can’t make any promises.
Forum at a Glance
Forum at a Glance for July 30 - August 5
Oracles Core Unit Update
- This was our first week, as well as the first update coming from the Oracle Core Unit.
- The team is still setting up following their first week of operation.
- We’ve been focused on the London Hardfork preparation. We’ve been testing various scenarios, which have been difficult due to the gas price market.
- We are ready to begin pushing software updates to accommodate the new market conditions of Mempool. It may take a few days for the team to finish setting up.
- We are still not using the EIP 1559 transactions due to continued reliance on 3rd party software and libraries to send transactions. Unfortunately, support isn’t there yet. We still are not sure exactly how the gas market will settle and proper strategies related to the gas market. We should have a better idea in due time.
- The MATIC oracles software and contract are ready. However, the fees are still being deployed. The deployment has been slow due to the London Hard Fork. Still on track for next week’s executive.
- Once the dust settles with this gas fee situation, we will push to complete the rest of our work, including a handful of feeds and some layers. Besides that, everything is looking good.
- We began the internal road map exercises. Many interesting ideas came from the team, which are being constructed into a roadmap. This should help up prioritize hirings. More updates are coming soon!
- Payton Rose: I have a question about upgrading 1559; how long is that process?
- It is probably going to be a couple of weeks; I am not sure. We do not have a due date for the libraries, especially since one of them is very dependent on those tools, which is unfortunately not supporting EIP 1559. We have another code that does not rely on those tools, and I do not know if we will push that soon, but it is a big dependency. At best, I estimate a couple of weeks. If things get weird and we see a significant saving in gas cost by going with 1559 sooner rather than later, we might try to expedite things. However, gas costs aside, things look pretty good concerning legacy transactions. I do not see any reason to rush it.
Real-World Finance Core Unit Update
July Financial Report
- We published a MIP for RWA Foundations. We worked with the Cayman consulters on the structure where MakerDAO can indirectly hold RWAs. It is interesting that now there is a MIP to guide the servicing companies that will manage the RWA Foundation. We are still in the process of finalizing the articles of association.
- We will now be able to provide additional financial reporting thanks to our new full-time hire, Mark Tyler Phillips.
Centrifuge executive has passed on August 4th and contains three new RWAs, which goes live this weekend. The People’s Company will take additional time to set up; it will be available within weeks or months.
Growth Core Unit Update
Growth CU Weekly Updates
Stablecoins in PSM:
- Paxos posted their proposal to include PAX in the PSM. Following @ultraschuppi recommendation, they are proposing similar parameters. They also will add Dai’s support to their platform by the end of Q1 2022 (if not sooner), which would be a way to offer an on/off ramp for Dai. This will also allow Paxos APIs to anybody who wants to integrate Dai.
@Growth-Core-Unit recommends the community to not include any other stablecoin into the PSM unless they show interest in it and are willing to partner with the protocol. The PSM is a powerful DeFi use case for other stablecoins. We are confident that after the inclusion of PAX, others will be open for agreements with MakerDAO.
- Nonetheless, we will continue to respect the community’s opinion even it contradicts our own.
- We continue our conversations with the projects that could be offboarded. Until now, Kyber (KNC-A) is the only one who is not interested in opening a Vault to take the remaining debt.
@MarianoDP posted a MKR Valuation Report by Messari.
- We shared the July PnL in our weekly update found above.
Stars of the week:
- Recognized digital artist Micah Johnson, Async Art, and @Growth-Core-Unit will be promoting a special day on Aug 10th, which symbolizes the adversity that people of color face in the US and the conversations around equity, diversity, and financial inclusion.
- Dai and Bitcoin have supported currencies that people can donate to a fund set up for the boys who will have access to on their 18th birthday.
- Battle Racers announce the MakerMaker ShowDAOn tournaments, another tournament in DAI alongside Community Gaming with prizes in DAI
Content Production Core Unit Update
Content Production Biweekly Updates
Transparency Dashboard 13
- We extended the art contest for another week. If you submit, please reach out on Rocketchat or Twitter and share your drawings.
- We’re making progress on the Community Portal, including Explainer Videos and more content and design stuff in place regarding the CMS.
- Have been uploading videos on YouTube for Maker Relay. We split the Maker Relay into 3 sections; the State of Dai, Current Events, and Votes and Polls. We would like to hear feedback.
- We’ve taken over the substack that Tim Black has previously managed. We are in the process of a content plan. So far, we have posted copies of Maker Relay on there. Check it out and sign up!
- We have been doing brand research. If you’re interested in supporting the MakerDAO brand, please sign up or contact us.
- We will be posting an accounting update later this week.
Sustainable Ecosystem Core Unit Scaling
SES Public Folder
Governance Communications Core Unit Update
- Thanks to all the voters who stood by us. We are very excited!
- A big thanks to GovAlpha and mandated actors who are part of the MakerDAO interim operating budget multi-sig. We secured 10,000 DAI in grants to help secure our funds for working during the last few months.
- Immediate priorities are to set up tracking and documentation for all of our active projects and to hire that Engagement Lead so we can begin tackling the other portion of our mandate.
- We are also planning on improving current projects such as the Maker Relay. In addition, we are working on strengthening our team to submit greater quality and more punctual summaries.
- As we set up the Core Unit, we still haven’t gotten the first disbursement or the Payroll setup. But it will happen soon within the next few weeks.
Hiring a full-time Engagement Lead. We prefer diversity, such as a female who is charismatic and proactive. We need to begin to engage with stakeholders at MakerDAO to give them information and gather information for ourselves.
- Office hours are set to Fridays 18:00 - 18:30 UTC and are available on the public calendar.
Weekly MIPs Update
- My name is Pablo, also known as @Blimpa on RocketChat and on the Forum. I am part of the GovAlpha team.
- Payton Rose: As a reminder, those ratification polls will run for two weeks, and to pass. they both need more ‘yes’ votes than ‘no’ votes and at least 10,000 MKR to pass.
- David: If anybody is looking for the MIP dates and you do not know where to find them, there is a pinned topic in the forum under the MIPs category. It has the important dates for each of the upcoming three or four governance cycles.
Presentations and Other Discussions
MakerDAO July Financial Report
Financial Report Post
Financial Report Video
- Payton Rose: With our risk ratios looking better despite revenues dropping, is that due to the increased stable coin exposure?
- The CT1 excludes stablecoins. It has been challenging for our surplus buffer to keep up with the growth in assets because if we risk our assets doubled today, our CET1 would just drop by half. We have to stay at a certain level of loans to start accruing equity in the surplus buffer. If you grow too quickly, your safety will lag because you need time to have those loans accruing trust. With the decrease in loan demands, you start to see that income comes in from the loans. That is why it keeps increasing. If loans double tomorrow, our ratio will go down, and time to catch back up.
- David: I have a general question regarding the CT1 measure. Let’s say we are in this environment where the MKR price is relatively healthy, and the other part of the CT1 ratio is growing. Still, our surplus buffer is not. Would people in the DAO be generally opposed or for slight Maker dilution to raise that surplus buffer and not necessarily rely on us purely on our revenue streams for accruing that? I am curious as to why you would be opposed or agree.
- It comes down to how much risk the community governance wants to take in our safety ratios. Generally, risk has recommended higher ratios, and I think I have been pretty vocal about not wanting to burn MakerMaker while we’re below the recommended ratios. I think long term, we should align as a community on what inappropriate and targeted CET1 ratio and liquidity ratio or our leverage ratio is and then just start not burning MKR when we are not at those ratios. Then that way, it is just kind of automatic. We could have certainly one-off situations where maybe the ratio is slightly low, and we think it is a good opportunity to burn some MKR; perhaps we can handle that through separate signal requests and vote, but generally, I think given how opposed people are to minting and taking the higher risk to burn MKR. I believe there is just no appetite for diluting holders to reach these appropriate risk measures.
- David: We still have the 84,000 Maker that the foundation transferred to the protocol in the pause proxy. To give a little bit more context to this question: I am probably also leaning towards opposed, but my thinking is that if we go for a dilution, it usually happens when the MKR price is bottoming out, and we end up taking a really bad haircut, which is what we saw on Black Thursday right? We ended up selling a lot of MKR really low. However, if we are lagging behind our risk metric ratio and MKR price is high, it seems like it might be wise to actually try to raise cash from not purely diluted MKR but MKR that we have free like that 84,000 MKR might be an interesting tool to use. I am just thinking out loud; I do not have an opinion one way or the other.
- We should probably define a targeted measure. Subs talked about the Basel requirements that banks have in terms of risk measures they must follow, so I think as a community, we should look at these, you know, work with risks, take the recommendations and then lock in what we think is appropriate. I do not know; people want to dilute to get there, but hopefully, we have time to get there before the market starts to rebound and the loan demand takes off again.
Sébastien: Maybe one thing to add is that we currently have a buffer, which is great, but the main risk we face is tail risk. If you have one percent or four percent and are blacklisted on USDC or are falling like a knife, you lose everything. So having one perfect buffer or four percent does not change anything. This will make more sense in the future, where we will have more negligible risk. Still, more diversified risk, and where the buffer is essential for that, it is true that we have many tail risks, so it does not change much. Still, it is essential to think about that for the future because if we have hyper-growth, it would be difficult to raise the surplus.
B.Protocol Declaration of Intent Primer
- We try to improve the liquidation process all over DeFi. We have some integration with Maker, but this is less relevant to these maps. Basically, we want to have a new collateral type backed by our liquidation system. This is a declaration of intent, so details are still flexible and could be set after this vote passes if it passes but roughly speaking, we offer to have another WBTC collateral type with a better liquidation ratio, which will allow a higher leverage ratio, the users will make liquidations more secure for this collateral type. They will give more opportunities to get higher stability fees.
- The system works as follows; we plan to offer some models on top of the DAI saving rate. In the future, it will be maybe more attractive yield building platforms, but let’s start with the DSR so users will deposit to the protocol it will go to the DSR, some change in the dog will be done so whenever bite is called a B.Protocol, I will try to get the DAI from the deposits of the user, will use it for the liquidation and then the main novelty we offer is a rebalancing algorithm in which the is sold automatically back to DAI. Then it will eventually go back to the idle pool to the DSR. The rebalance algorithm takes some combination of price feed and the V1 formula, so this is a taste. There is a discussion on the forum, present to small details next week. In general, we appreciate any feedback on the forum from different teams.
- Christopher Mooney: Whenever this
bite happens, there would be this alternate path in the
dog, maybe it would be a
bite. Still, I think it is a
bark right now. Then when that happens, I assume we do this kind of… Let’s call it a curve rebalancing, right? Is there a point at which we exit that entirely and just throw the collateral out for liquidation because we are afraid this rebalancing is no longer working? Is there a pressure relief valve there?
- Yarn: From an MKR point of view is like a kind of an external system to make it right, so if you have pressure, it will just offer a higher discount, but from your perspective, you do not really care about the balanced profits or lost society, you only care that the liquidation was successfully executed, but there are some discussions in the forum that for example, because of battery balance the idle balance reduces or decreases the ceiling of this collateral type. This way, we can have some risk management system because eventually the DAI collateral will decrease the DAI in the DSLR, will fall only upon liquidation, which by definition means that the debt gets smaller so we can have an auto adjustment that if there is not too much collateral damage in the DSLR because of battery balancing, then we can lower the ceiling automatically so there could be some mitigations. There are more details that I didn’t mention, we expect that the bite or the
bark we just dump it with some flat discount or 5%, we did some simulations, and we did it not on D% but actually on Binance futures liquidation and depends on many parameters, but we simulated 1 billion monthly liquidations, overall this seems quite profitable
- David: I had one question about multiple PSMs. I remember early on in the conversation, I think it was like Chris Mooney or somebody was detailing what was called a vampire attack where if there are two PSMs, basically the issuer would have undue power to shift all of the balance to other PIPs; I cannot remember the exact details honestly - had a hard time wrapping my head around it but is that like a valid concern? Was it invalidated? I am curious what that was.
- Christopher Mooney: Because of the reserve allocation that Paxos does because they are a regulated stable coin or at least their backing is regulated under New York law, they cannot do this. Part of the attack that sort of requires or necessary for the attack to work was that you would need the people at Pax to actually have to issue new Pax or, like it was, GUSD because NGOC is in the same situation, they would issue a new Pax or new GUSD. They would put it into their PSM, get a bunch of DAI, and push the DAI one to one through the USDC PSM. Now they have got a bunch of USDC and what they do is they leave their collateral backed by USDC, and they begin a claim for the actual US dollars through Circle. I think I do not know this for sure. I am guessing that this attack would be illegal or would not be complying because of how the collateral backing is regulated. So the vampire attack is less likely to happen that way.
- Christopher Mooney: Interestingly, it may not be out of compliance for USDC or Tether to make this attack because they do not have that same strong regulatory backing. In theory, they actually could be vampire attack the PSMS in the other direction. Still, at this point, we could easily cap USDC because we do not need any more exposure there. That was the vampire attack, if you had any other questions about it. The precondition was basically that they can mint without backing in some unregulated way. Still, because Paxos and others like GSDRs are strongly regulated, there is not much risk, so it makes sense to do multiple PSMs; this is the gist, yes.
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
RWF: Real-World Finance
SC: Smart Contracts
CU: Core Unit
- Artem Gordon produced this summary.
- David Utrobin produced this summary.
- Andrea Suarez produced this summary
- Everyone who spoke and presented on the call, listed in the headers.