Open Ended Discussion
Agenda for these meetings going forward
- As part of the Governance Facilitator Mandates, there is an intention to set the Agendas for these meetings or at least make public the agendas for these meetings at least a week in advance. Going forward, we will be posting the meeting Agenda for next week at the end of this week’s meeting. With a week in advance, if anyone has anything that they would like to present, then they can either message us or post in the thread and say what they want to do. That means that everyone will have an idea of what’s coming and if they want to attend. Obviously, if there’s anything urgent, we can add it, and we’ll try to provide as much notice as possible.
WBTC Debt Ceiling
Lev: Does anyone want to talk about the WBTC debt ceiling? When WBTC was added it wasn’t clear where the debt ceiling should be, but now that it’s being used 100% it’s interesting to discuss this, and the risk parameters broadly, the risk factors for WBTC, the general schedule of scaling WBTC in Maker, increased decentralization of WBTC… Some of these topics are better addressed in the Forum, but I wanted to highlight here that these are things that I think are interesting. Particularly as we hike the debt ceiling, well, depending on what the poll says, but we might be back into that rhythm again. It’s worth thinking whether the WBTC debt ceiling should be proportionally hiked up to a certain point and what the community sentiment on that is.
Cyrus: It would be interesting to see if there’s demand outside of the current 0% market. Right now, it’s subsidizing huge carry trades. If the rates were to normalize back up, would the demand still be there? At this point, is it a good idea to just raise it if we’re subsidizing a secondary lending platform to take advantage in that way. At least with ETH, you don’t have to worry about the counterparty risk or the decentralization risk. So if the goal is to get the Dai peg in line, for me, it feels safer to keep raising the ETH debt ceiling.
Lev: I didn’t mean to suggest that we should blindly raise it. There are some limits related to the counterparty risk. For ETH, there should be a limit where if you have too much Dai issued against ETH, ETH liquidity becomes a serious problem. I don’t think we know where exactly that level is. Or at least as a community, I don’t think that we have come to a consensus on what is the hard limit for that ceiling. But as a guess, somewhere between 100 million and 1 billion, we are going to start to have serious problems with liquidating. A Black Thursday scenario would be not only bad with what we had with the auctions but also bad from the ETH liquidity point of view. And ETH uses BitMEX all the time, so there’s a crazy BitMEX liquidation already this week. There is also some level with ETH that we would have to worry about. The nice thing about BTC is that there’s extra liquidity there. When this was initially added, we did not discuss in much detail what the appropriate debt ceiling should be. I don’t think it made sense to argue too much since we didn’t even know whether 10 million Dai was going to be generated against it.
Cyrus: Those are all valid points. In terms of liquidity, one point that I want to make is that I think before we hit the constraint of the liquidity of the collateral assets on the exchanges, we will hit the keeper’s Dai liquidity constraints first. Keepers will run out of Dai before the markets run out of asset liquidity, I think. Given that ETH and WBTC are pretty much correlated, at least on the huge downturns, whichever one crashes or has the most Dai outstanding will cause a DAI liquidity crunch. The keepers are going to be constrained one way or another. From that perspective, I don’t think you will get a major benefit one way or the other. For me, it’s more a question of the counterparty risk and how the community wants to deal with it, rather than looking at BTC and seeing if BTC is some small percentage more liquid than ETH.
Lev: I have two points. I’m not sure if I straightforwardly agree with what you said about Dai liquidity. I do agree that Dai liquidity is extremely important for downside liquidation risk. However, I’m not sure that Dai liquidity gives you a straightforward cap on the debt ceiling of a collateral asset, because as you grow the debt ceiling, you have more Dai issue, and you expect to see more keeper Dai inventory. So as a thought experiment, if we set the ETH debt ceiling ten times where it is known, 1.2 Billion or something like that. If we reached that, I would expect to see ten times more Dai available for Keepers because we’re increasing that Dai by increasing the debt ceiling. So it’s not like they wouldn’t keep up with the increased issuance. You’re growing the whole market, maybe proportionally. Do you see what I mean?
Cyrus Younessi: I might have misspoken. If you have a 50 million debt ceiling between ETH and WBTC, if they both crash at the same time, keepers will still have the same amount of Dai constraint, and even if you 10x it to 500 Million, you would still have the same constraint. My point is more that when choosing to allocate between ETH and BTC, you would assume that they’re part of the same class, the way you want to mix them would potentially not be based on Bitcoin’s liquidity versus ETH’s. Potentially there are other bigger concerns.
Lev: I agree with that. You’re saying that we’re exposed to this factor… “crypto” or BTC/ETH, and then most is coming for that. I agree that they’re correlated assets and you’re looking at it as: Do you want to split this massive exposure between ETH and BTC. From a pure liquidity point of view, I think that BTC has more liquidity, but you also are introducing this counterparty risk.
Cyrus: My whole question is: is that trade-off worth it? Do we want to have potentially marginal extra liquidity for the added unquantifiable counterparty risk? Maybe we do, that is totally fine, but it’s a conversation we need to have. And I think it’s a discussion that has to happen before raising the debt ceiling on ETH and WBTC, that’s all.
WBTC being used for rate arbitrage
Raising the rate for WBTC
chris_p: One comment about WBTC is that it’s not a static thing. There are a lot of discussions going on right now to make it much more robust, adding more people to help out with the Wrapped BTC DAO, and this is something we should consider too when we discuss how we’re managing WBTC.
Cmooney: Does anyone have any idea on how high Nexo will be willing to go for this rate arbitrage?
chris_p: It’s a marketplace. Somewhat unfair to judge the outcome of something because someone has found some clever way to make a market more efficient. I don’t think we should poopoo necessarily on anyone that’s speculating on a different aspect of DeFi. I mean some people like speculating on the ETH, they open up a CDP, and you’re long ETH. Some people see an opportunity, and there’s a tool that they can use. We’re competing against other projects, whole other blockchains, the community should be cognizant of that.
Cyrus: I agree, I don’t think that anyone is trying to penalize specific actors.
chris_p: If what I said came as that, that’s not what I was saying at all. Our problem is that we have 25,000 or 26,000 Wrapped BTC in our system that presumably has a similar liquidation point and would be nearly impossible to clear. If we hit liquidation on that. At the very least, we should be building a surplus buffer in order to possibly handle the liquidation of that asset, and MKR holders should be compensated for some amount of risk. I think it’s great we found a user that really wants to use the service. That’s awesome, but we should be compensated for the risk that the protocol is taking.
LongForWisdom: So it’s not something necessarily bad, but something that we need to pay attention to.
chris_p: Of course. I think that we all generally agree that we should raise rates on Wrapped BTC.
LFW: Yes, we should see what people say in the forums.
chris_p: Yes, of course.
Kurt, Sam MacPhearson, Cyrus Younessi
Rich Brown: What I say quite often on these calls is that we have a complex ecosystem, we have lots of things to do, we have coordination issues, we have a lot of people that we call a DAO, we have MKR holders, and the Foundation itself. We all established a bunch of cultural norms on how we do things over the last year or so through the forums, the chats, these calls, and the portal itself. As the complexity and the volume increase, that’s usually the time when people start to ask if we need a process and what they look like. That’s where MIPs came from. I feel we haven’t quite internalized what that implies. We have all things we need to do, a series of documents that explain how to do those things, and we need to transition from one world into the next. There are issues around how we match processes to our workflows and how we alter our workflows to match processes and make sure we all understand what’s happening and when. These are larger discussions, and I’m sort of having second thoughts, whether that’s a discussion for today. If people have thoughts, I could be convinced and start talking about this stuff right now. Or we can plant a seed and, in another call, get into the specifics.
LongForWisdom: I would be interested in seeing what people think about the MIPs process if they think it’s helping in a tangible way. Either now or whenever.
Cryptowanderer: If you see it as a living process, then it’s probably a positive thing. The mere fact that you’ve been able to suggest 2 MIPs that A) Get on Rich’s nerves and B) Give the community some real power. It’s quite exciting. Seeing that there’s a consistent line of thought as the Foundation gets towards this gradual decentralization based on which operates, and the MIPs provide that framework. Nobody thinks that they’re perfect. Based on that, we should become more and more familiar. Answering Rich’s point about how we address these specific pain-points and coming into these meetings with very specific points that help us improve. That would be cool to see.
LongForWisdom: I absolutely agree. If anyone has identified a pain-point but doesn’t feel like going through the writing of the MIPs process or is nervous about whatever, you can talk to me, or Charles or anyone for help or advice so you don’t feel like you have to do everything by yourself.
Rich: I’m not sensing a strong outpour of deep thoughts about where we’re at. So maybe we’ll formalize it, and bring it back in another call, or it might come back organically. This might be a good time to wrap things up finalize the call unless there’s any other order of business.
- Thanks again, everyone, for joining us today. We’ll be back next week with more exciting adventures of Maker governance. Thanks for the presentations, the questions, the discussions about WBTC, and we’ll be posting the video one the social channels. Thanks, everyone.
Links Shared in Chat
MCD: The Multi-Collateral Dai system
CR: Collateralization Ratio
DC: Debt Ceiling
ES: Emergency Shutdown
EV: Executive Vote
GP: Governance Poll
SF: Stability Fee
DSR: Dai Savings Rate
MIP: Maker Improvement Proposal
Tim Black produced this summary.
David Utrobin produced this summary.
Igor Teslya produced this summary.
Juan Guillen produced this summary.
Everyone who spoke and presented on the call (listed in the headers.)