Analysis on the zero-bidders
- chris_p: One of the things that no one has mentioned yet about this compensation plan is, what about some analysis on the people that took advantage of the system by placing all the zero-bids?
- Monet Supply: I think it’s out of scope for compensating the vaults.
- MakerMan: You need to define what “taking advantage is” because for people to borrow Dai, they have to put up collateral, right? And this is a contract, and they get to manage it. What’s the point, Chris? I don’t understand.
- chris_p: If you’re talking about compensation here, fund recovery is important. We should explore all paths on how to get that money back. If we could contact the zero-bidders and say “Hey, would you mind giving the money back?” if there was some kind of negotiation there, in addition to paying people out, that should be discussed.
- MakerMan: Let me give you an example. Coinbase had a little price drop. My wife pointed this out: “Who are we to say what the right option was?” You could debate the way it worked. The same thing happened to Coinbase; what did they do? They ate those losses and made people whole, but that was their choice, right?
- Rich: There’s a lot to go over. We have a plan that took months to put together. There are a lot of things to digest. Let me do some moderation here. Chris has a point, and that’s something that the community might be interested in getting into. It’s not about judgment; it’s about exploration. If the community is interested in aligning some efforts to filling the other piece of the puzzle, I don’t see anything stopping them from doing that. So this is a conversation that can be continued in the forum. I don’t imagine it takes much time to determine exactly where all these funds ended up. It’s worth exploring. I would really like to focus on the actual details on these slides before we start diverging into philosophy about blame and who won and who lost.
MIP14 and Working Group Payment
- Rich Brown: MIP14, we have talked about this in the last call too, and it’s worth revisiting, so if people have concerns or questions, please look at MIP14 again to get the necessary context.
- Rich Brown: Second question or observation; you mentioned briefly at the end of the slide previously about the compensation that is going to be needed for the work that went into doing all this evaluation. I want to make sure that that’s not lost. Because you guys don’t have a horse in this race, I’m assuming, and you all put in a significant amount of work here. So, are you guys going to get compensated as well?
- Monet Supply: Yes. In the end, one of the appendix sections is “working group payment.” We are going to be recording all of the various costs.
- Rich Brown: Good, I just want to make sure that you guys are not shy.
- Monet Supply: No. It’s totally up to governance, of course.
- MakerMan: We threw that in the end because it’s such a small quantity in comparison to the total that it’s going to be looked at here, that it felt appropriate.
- Monet Supply: Yes, and I think it’s really up to Governance whether they approve it.
Thanks to the working team
- Rich Brown: I want to thank you to Monet Supply, MakerMan, and anyone else whose name I forget that may have contributed to the effort. It was a tremendous amount of work. I encourage people to dig into the full document and the forum thread as well. We have a lot to cover today, but I don’t want to end this conversation prematurely, so if people have questions, please jump on the mic.
Fix Amount and Issuing Equity
- Joseph Q: I just want to thank them because they did a great job on it. I’m ok with everything. My only question is, “why not instead of doing flop auctions, why can’t we just say we agree to an amount?” It’s in your appendices, the icebox. Just do it over time as the system makes money because the system is not making any money right now. And then we do a
flop auction. The whole point of MKR being an asset that could be auctioned off, and have stability on it; we would crash the MKR price, I believe.
- Monet Supply: My thought on that is that maybe we don’t need to be as hesitant with issuing equity as we think we do necessarily. Compound just voted to dilute themselves by like 80%. It’s not a direct comparison, but I think it would end up feeling stingy to the vault owners if we basically just said, “we’ll get to it when we get to it.”
- Joseph: The VCs will sell, and I’ll tell you that right now. Do you want MKR to be trading at $100 dollars? That is the blunt reality. My guess is that compensation would be like $2 million. MKR is trading at $470 right now. If this gets to governance, then they’ll dump it, and they will bid on the
- Rich Brown: I’m not sure about it. There’s a spectrum for these things. It’s obviously worth exploring, and maybe even a model of what we would have. First, people need to vote about which levels of compensations they’re interested in, and then after that potentially scheduling. It seems like there’s a pile of options and people who are more clever than I can come up with the best options that would minimize the impact on MKR. It’s an interesting discussion.
- Rich Brown: Something that we need to understand sooner rather than later, for true agency to occur, there needs to be some method of funding, to control their own destinies. We have talked about MIP14; that’s going to get us beyond helping the people that did the work. But at some point, there needs to be a process to pay for things. And this seems to be the instigator to make sure that we get to a plan that actually works. This is going to be an interesting couple of months. I’m going to ask people again. This is really interesting stuff. It has impacts on our ecosystem; it has impacts on our culture; it has impacts on the perception of the Foundation externally. It has an impact on the people that engage with our ecosystem as well and suffered a lot. There are lots of things to be discussed here. Please engage in the forums.
Charles St. Louis
Weekly MIPs Update Forum Posts
- We’re in the last week of June’s governance cycle.
- The executive vote went live on Monday to officially ratify the six proposals which covered amendments, onboarding a risk team, and the Declaration of Intent MIP. I’ll share the link right here.
- The important thing to know is that the executive vote has four days to pass, as of Monday, when it started. The proposals can only move to accepted status if the executive vote passes within that time limit. So, this is a reminder to go and vote. There are still approximately 11,000 MKR needed to pass(vote now passed.)
Governance Cycle Review
- As for today’s business, after my update, Rich and LongForWisdom are going to do the Governance Cycle Review, which is a time to summarize and discuss June’s governance cycle with the community. It can also be used to discuss any upcoming activity for the governance cycle in July, which includes any potential submissions. I’ll definitely use some of that time to take a moment to speak briefly about a new MIP submission plan for July that we’ve been working on.
July’s Governance Cycle deadline
- The formal submission period for the July governance cycle is July 8th. If you have any proposals in progress, post them in the forums and get the review sooner rather than later.
Light Feed Proposals
- In other news, the whitelisting oracles and new light feeds proposals that passed the governance poll stage will likely be put in an executive vote within the next week or so. I’m not sure about the exact date, but that will be included in the forum update that I’ll post later.
- In terms of collateral onboarding, the executive vote for KNC and ZRX will go live tomorrow. The new community greenlight polls are live and will run for approximately 11 more days. The polls are for gauging the sentiment about adding:
- I do want to note that if the amendment MIPs that pass this month exec are ratified, the community greenlight polls will start in the third week of the governance cycle and end at the end of the governance cycle as opposed to carrying over to the next month’s cycle. This improves the flow of the overall collateral onboarding process, so it’s important to get this in to improve the flow.
MIPs Forum Subcategory: Proposal Ideas
- The MIPs forum subcategory Proposal Ideas has an update. It has a new entry by Andy McCall, and it’s for adding a poll to prioritize collateral applications. Here’s the link.
- The proposal ideas category is where community members can post and discuss any proposal ideas to improve Maker, the protocol, or the governance system.
- I encourage everyone to vote and go to the forums.
Governance Cycle Review
- We started this month with nine proposals that we submitted in the initial submission period:
- MIP13: Declaration of Intent
- MIP14: Protocol Dai Transfer
- Four amendment MIPs, amending parts of the collateral onboarding process
- A subproposal to add Cyrus as a risk team
- Two MIP12 subproposals to onboard KNC and ZRX Vault types
- In terms of stuff that we ended up accepting into the governance cycle, that ended up being everything except the MIP12 subproposals because they didn’t contain all the domain work that was required to make them valid for the MIP process. So Charles said that’s being pursued under the weekly cycle for this month.
- Seven proposals went into the inclusion polls. The outcome of the inclusion polls is that six of those continued to the governance poll. The only one that did not make it was MIP14, as we discussed. So there are six up for vote in the executive out of the nine proposals, which is reasonable.
MKR Voters in Polls
- Comparing the first cycle to the second. We had one submission in the first month, versus nine submissions in the second. In the first month, we saw around 5k MKR voting in inclusion polls. This month, it was more like 17k, which is interesting.
- In the second poll, the governance poll bundle, the amount of MKR was around 5k the first month and 4k the second month. That indicates that MKR voters are finding that poll less important or less impactful. I encourage everyone to vote in it because if it gets voted down, on the stage, then it doesn’t continue. It’s potentially a signal that MKR holders view that this stage of Governance Polls are too much effort.
July’s Governance Cycle
- Charles already commented on it briefly. There are currently two MIPs in Request for Comments:
- MIP14: Protocol Dai Transfer
- MIP15: Dark Spell Mechanism
- I don’t believe any of these will be submitted for the next cycle, although I could be wrong.
- There’s potentially some other stuff coming from the Foundation to be submitted as well.
- I encourage everyone that has MIP ideas or is in the process of writing MIPs to submit them as soon as possible.
Liquidations v1.1 with the Smart Contracts Team
Flopper contract fix and impacts
- As you know, when we did the
flop auctions, some of them got stuck, so we discovered there is a small bug in the
- During that, we also realized that the three different auction contracts: the
flap (or collateral, debt, and surplus auctions) require double liquidity when interacting with them in certain cases. That is already fixed, tested, and formally verified.
- As well as the
flopper with the stop-debt auctions. We plan on fixing those in the next governance cycle, and that would imply deploying new versions of all of these contracts.
- This is a change that impacts everybody running a keeper like DeFi Saver, for example, with their UIs. But, to be clear, the only impact is that they would need to point to new smart contracts, so nothing in the interface changes.
- We wanted to do this for these weeks, so that the new collateral types, KNC and ZRX, would deploy with the same fix. But we decided that we better put it out to a community.
- This is not an emergency but an upgrade. We are going to put it out next week in the forum, with all the information: the smart contracts and the result of the formal verification.
- Hopefully, it is not a controversial change, and we can get to vote on it at the end of next month.
MCD system stats
DAI 24hr VWAP Graphs
The State of the Peg
- Total Dai is at $130 million, so it’s not a significant change.
- USDC-B and TUSD have been added as empty buckets, with that being the plan for USDC-B, and TUSD having a surprise token contract upgrade that requires a fix before being usable.
- Dai from WBTC is sitting flat since it hit its capacity. It’s probably not going to move since it’s a few individual users. Unless they decide to change their plan or the
DC gets moved.
- Dai from BAT down over the last few days. It’s obvious why, but we can go into that. Also, it’s not a huge margin to begin with.
- Dai from USDC hasn’t moved much in the last couple of weeks, but it’s come down since May. That utilization isn’t expected to move, given the current ecosystem for lending (I don’t think). That has basically come down since
SF was moved off of zero. A lot of that utilization was either temporary or due to the fact that it was effectively free money.
- Dai from ETH has been growing; there were a few spikes. Those spikes were not particularly sustainable, so they leveled out, and it resumed the normal growth path. This was some refinancing to Compound. Then basically it’s been a slow but steady increase since it dipped back down, about a week ago. It’s still sitting at around $116 million Dai from ETH.
- In the context of the peg, trading volumes have been somewhat light but still sustained.
- The Dai peg had come back to about $1.01 after dipping down a bit lower, and then it’s just slowly gotten closer to the $1 mark since then. Partly that’s explained by the supply increase and partly from what’s been going on with ETH price.
- Following the (blue) lines of the ETH price, you can see the (magenta) Dai price level off during fluctuations. Though during a spike in ETH, Dai price didn’t change as quickly. These fluctuations have been too frequent and too small for Dai peg users to purchase back on the market. It didn’t create a huge shift in market behavior with Dai.
- It’s also good to keep in mind that during this time frame, there was a little bit more Dai minted, but significantly more Dai supplied to Compound in the same time frame. This pulls from circulating supply.
- If you look at the minting of ETH from June 15th up to today, you can correspondingly see that increase of supply on Compound. Even if the circulating supply has gone down, the volume of trades occurring at elevated prices did not increase.
- If we look at borrows on Compound, they’ve increased but not as much.
- In the same time frame, supply had a $13 to $16 million increase, depending on the day you pick. There’s a bit more Dai that was supplied than borrowed. Even though liquidity should have decreased, the Dai price didn’t increase, but actually decreased. Both when ETH went up and went down. Just a bit odd, a curious indicator.
- MakerMan: There’s the first dip on June 12th, and the peg actually went down. Just like it’s doing on the first dip here. Whereas the second dip, it bounced back, June 14th, and then it went down again. That’s when we really got the spike. The first dip didn’t do anything. So, maybe, it’s the double-dip.
- Vishesh: Well, it’s all relative. ETH had been going up from 200 all the way to 240. And then there are fluctuations, but there are small in comparison to the larger movement. So these can be considered everyday fluctuations. At that point, the market had not necessarily made any decisions about what to do with their Dai.
- MakerMan: Well, you see what the trading did there. There is a spike down in the volume and a change around the average.
- Vishesh: There always been small run up and down events. These are smaller volume trades. It sometimes helps to look at some the larger trades on this graphic:
- Vishesh: a lot of the trades are happening around peg even when the ETH price is elevated. Around June 14th, the price of ETH goes down, so people are less secure of what happens, and Dai purchasing occurs. It’s not only about ETH-downward’s movement, but also when that movement is sustained, and it could potentially lead to liquidations. That is the moment when people start to buy back in order to protect their positions. I don’t want to belabor that point too much, but basically, it snapped back into this traditional inverse relationship, except in the last few days, where it broke from that a little bit. And it’s been coming down anyway. That’s a bit odd since there are large chunks of Dai that have been funneled straight into Compound’s supply.
- Rich: Was frothiness introduced by the yield farming craze? Do you think that’s the explanation here, or is there something else?
- Vishesh: The “yield farming craze” effect on Dai is what I’m talking about. The result of what’s happening there is a bit contrary to what you might expect. Yes, there is more borrowing on Compound, but there’s more supply, which is outpacing borrow. So theoretically, for the moment, it’s as if there’s effectively a higher interest rate for supplying on Compound. We know what happens in those situations because that’s something that we’ve seen before. COMP is effectively another unit of account where people are earning a yield for this behavior. That could, economically, be thought of as an increased interest rate. If you’re earning a higher supply rate on Compound if high enough, they can mint Dai on Maker and supply straight into Compound. It appears there’s a lot of that going on. But also, generally speaking, they keep positions open, which continue to lever up and choose to eat any
SF or Dai premiums in order to get access to those yields. That’s the kind of stuff that we’ve seen in the past from Dai users. Even with all that going on, what you’d expect is the Dai price to rise, but it hasn’t in that same time frame. So I think that’s interesting.
- Monet Supply: Depending on how Compound changes its incentive structure, that could have a big impact on Dai minting. There has been a discussion about incentivizing ETH deposits. That could change the game.
- Vishesh: The one thing to note is let’s say the yield for COMP isn’t quite as good for Dai. That potentially reduces the amount of borrow and supply on Compound. It’s not clear how that would affect Dai, if at all. It may not have an impact on the peg if they are symmetric effects. If they’re asymmetric, they could have an effect either way. As it stands, it appears to be somewhat symmetric.
- Monet Supply: Even if the peg doesn’t get impacted, I think the open interest on ETH<>DAI borrowing could move and make everything more unpredictable at that point.
How COMP affects the peg
- MakerMan: I was going to follow up on Vishesh’s analysis. It looks like the price on COMP is affecting rates. Does anyone see anything that could broadside us here? It looks like it’s driving a rate seeking engine in a weird way that doesn’t seem normal from a money supply perspective.
- Rich: I second that question. I would like to hear more. This whole yield farming thing makes me nervous, and my main concern is how it affects Dai.
- Vishesh: There are two separate questions there. One is, how does it affect Dai? The other one is, how does this affect lending markets? For the second one, we need another one-hour call to go over. Regarding Dai, as I said, at the moment, the impact appears to be balanced. There are lots of open interest on both sides there. The simple question is, is there risk? The answer is, “of course.” Can we pinpoint how that risk mess with Dai markets? Very unpredictable right now. If something changes with those rates and they become more asymmetrical, then it could have a significant effect on the peg, in either direction. A not very realistic example, if it becomes more profitable to supply Dai on Compound than it is to borrow, then you would see liquidity for Dai dry up, pushing the peg upward. Until it becomes not so profitable anymore, and then you see a surge in liquidity and the peg goes the opposite direction, downward. So the point is that it adds a degree of peg risk and, in particular, a degree of dependency on the profitability of those behaviors on Compound. That’s the impact that secondary lending markets have always had on Dai. Whatever is initially profitable will either dry up liquidity or dump a bunch of Dai on the market. It seems either way. Also, these kinds of yields don’t seem to last. But it adds the potential for instability.
- MakerMan: That’s what I was going to say. If you double the number of opposing forces, you double the amount of volatility, loosely speaking—the pressure of volatility. So maybe we’ll see higher volatility on the peg.
- MakerMan: Another thing, in terms of vaults, is; we’ve seen the BAT vaults and how it pulled BAT from the system. I’m wondering if they switch it to ETH, is it going to start pulling ETH? Is it about vault risk if someone has a better market for ETH? Think of it from all sides. It’s not only the Dai risk. What happens to the business side too. I’m trying to digest it and see what’s giving me, given gas prices and everything.
- Vishesh: The types of users chasing yield on BAT are not necessarily the same that supply ETH to Maker for leverage on ETH. They’re potentially two different types of users engaging in different types of behavior. Just because Maker is one system doesn’t mean all users and collateral are the same. Actually, it’s more the opposite. The types of users for USDC are very different from the types of users that use ETH. I would imagine the same is true for BAT. Yes, the BAT collateral supply was significantly reduced in the past week or so. But, it wasn’t large, to begin with. So you have to ask yourself, are you going to use a percentage or a nominal basis? $400,000 worth of BAT is potentially not a large movement. So there’s a question on how much to read into that.
- MakerMan: It was just a note. I agree with you about the size of BAT. More about “what if that starts happening with ETH?” It was more of a general question of how it drives behavior. I was already a Compound user, and I posted on their Discord that it would be nice if they took the previous interest, for the last period, and figure that out for all their users, and as they’re dispensing interest block-by-block for all the new stuff coming in, portion some chunk of it to the BAT users, so they get a forward payment on the COMP. It could be a proposal, but it’s own thing, but looked wacky and would drive a lot of weird stuff. There’s like 700 million in addition on Compound right now, just driving the whole thing.
- I think we might be at the end. I’ll wrap things up. I want to take this time and publicly thank Monet_Supply and MakerMan for the work they did on the Compensation Plan and compiling an intention into a project plan. Coming up with a project, largely on your own, is a thankless task. It’s onerous. It requires a lot of work. I would like to thank you on behalf of the ecosystem. Please follow up in the forums, read the document that they’ve posted and comment if you have opinions. Thanks, everyone, for showing up. Talk to you next week!
MCD: The Multi-Collateral Dai System
CR: Collateralization Ratio
DC: Debt Ceiling
ES: Emergency Shutdown
SF: Stability Fee
DSR: Dai Savings Rate
MIP: Maker Improvement Proposal
flip: Collateral Auction
flap: Surplus Auction
flop: Debt Auction
- Tim Black produced this summary.
- David Utrobin produced this summary.
- Artem Gordon produced this summary.
- Gala Guillen produced this summary.
- Juan Guillen produced this summary.
- Everyone who spoke and presented on the call (listed in the headers.)