Discuss the effects of the current asset offboarding process and offer recommendations to improve future situations. Improvements would be aimed at reducing the potential financial impact to the vault user while ensuring timely execution of the asset offboarding as voted on by Maker Governance. The current assessment is based on the percentage of vaults going to liquidation as its benchmark.
Personal experience from myself, a user of Maker, will be provided as to the financial effects the current process has had.
With the recently approved executive proposal, Aave, an asset class that I personally minted DAI through a vault was offboarded. The reasoning behind the offboarding was listed on the Signal Request as:
The COMP, AAVE, and BAL vaults have very attractive rates (1% SF) compared to competitor platforms and have had ample time to build up a user base. However, no usage has materialized. The stability fees generated are quite poor (see below) and don’t come close to covering the Oracle gas costs. As such, I’m recommending the community offboard the COMP, AAVE, and BAL vaults.
Token Dai Minted Annual Stability Fees COMP 13,722 137 BAL 171,470 1,715 AAVE 1,065,355 10,654
The Signal Request passed a vote of yes to offboarding all collaterals, except MATIC. Subsequently, a Maker Governance proposal was listed on November 19th, passed on November 20th, and was executed on November 22, 2021, with the following effects:
As per this poll, the following parameters changes will occur to offboard AAVE-A if this executive proposal passes:
Lower the Liquidation Penalty (chop) to 0%.
Lower the Debt Ceiling (line) to 0 DAI.
Increase the Liquidation Ratio from 165% to 2100% over 30 days using dss-lerp.
Since the execution of the proposal, 14 Aave vaults have gone to liquidation as a result of the increasing liquidation ratio. These 14 liquidation events have collected 1,133,690 DAI.
- October 25th: NikKunkel initiates a Signal Request for Offboarding MATIC, COMP, AAVE, BAL with polls closing November 6, 2021. Offboarding off all collateral is voted yes, except MATIC.
- November 19th: the executive proposal is released to Maker holders for voting
- November 20th: the executive proposal passed by 10 supporters
- November 22nd: the executive proposal becomes governing and the ratio begins increasing
- November 22nd: four Aave vaults go to liquidation
- November 23rd: five Aave vaults go to liquidation
- November 24th: five Aave vaults go to liquidation
|Liquidation||Debt (DAI)||Collateral sold (Aave)||$ / Aave||Total Collateral||Remaining|
|Total||1133690||Total 4331.98||Avg 258.56|
With a total of 1,133,960 DAI being collected from the auctions and the Signal Request stating 1,065,355 DAI (as of Oct 25th), I think it’s safe to assume the 511 remaining DAI (shown on Makerburn) is minted from a single Aave vault. Based on the total DAI collected and not having an accurate snapshot of vault numbers at the time of proposal execution, I am making the assumption that 14 of 15 (93.33%) vaults have been liquidated.
From those 14 liquidations, the volume of tokens accounts for roughly 0.03% of the total Aave circulating supply. Maker’s Aave risk assessment highlighted that the token has relatively low DEX volume and has a higher severity of negative pullbacks. I wouldn’t doubt the recent volume had some negative effects on price, but won’t speculate further.
There was a comment of bringing these vaults back for the community once we get to L2s, but based on numbers you may have just scrubbed a good chunk of the Aave/DAI community through liquidations.
I’ve been interested in and following Maker since 2017. I’m an active crypto user, don’t have Twitter, read Reddit, will check in on the forums and Governance page semi-frequently as I was a MKR holder at one point so I retain the habit. I’m proud to have a four digit ETH-A vault. I was on the Black Thursday conference call when there was a scramble for keepers. I remember contacting someone on the old MakerChat but ultimately didn’t have the technical skills to get myself set up. Instead I supported the way I could, which was minting DAI via ETH in uncertain times. Eventually, I switched to using Aave as my collateral, even prior to the SF decreases. Ultimately, I was proud to support both of my favourite projects, but now I get to identify myself as one of the 14 vaults to be liquidated.
How did we get here? Quite quickly and with little notice. I was away from my PC for the weekend followed by two days of sickness, yet had confirmed Defi Saver (DFS) settings before disconnecting. With DFS enabled and my phone alert notifications set for the required pricing, I wasn’t too worried as I had even checked forums for potential issues. Even today, if I were to use the search function of the Maker forum it wouldn’t be until the 30th result that the Signal Request for Offboarding Aave appears.
With minimized worry, I was away for the three days followed by one day of illness and another for sleep. Upon recovering on Wednesday morning, I went to check what the DeFi automation settings would be with the newly accrued SF to have the “Claim” button being shown. After confirming it wasn’t a UI glitch and speaking with Nikolaj of DFS through Discord, I learned that “the DFS cannot react to [offboarding processes] as the system cannot recognize this “next liquidation ratio” as it keeps going up.”
I can attribute a hard loss of 202 Aave or 53,964 DAI (as per the closing auction price) from what I deposited to what I received as a result of the liquidation process. The opportunity cost of that loss will only continue to rise, especially given Aave V3 is slated for updates at the end of the month. Given the opportunity of what I would deem a ‘reasonable time for users to react’, I would have shifted my vault from Aave to ETH or Matic (although the handling of Matic’s potential offboarding and what appears to be confusion of where the relationship stands gives me extreme doubt on that action).
#1 Forum search needs improvement
Even today when I search “Aave” I don’t find the offboarding discussions until the 30th result. Shame on me for not diving into the Signal Request sub forum and checking in on the Governance Dashboard every couple days to ensure I didn’t miss something, but in my defense, I thought I had done enough due diligence as a user especially as I was no longer a Maker holder.
#2 Use methods to decentive vault usage prior to complete offboarding
I believe other methods of “soft” shutdown should have taken place first prior to official offboarding of the asset. The Stability Fee was decreased to incentive DAI being minted, why was the same strategy not used in reverse to get vault owners to either close positions or switch vault types once it was deemed the asset was no longer a viable vault product. Even a week or two of higher stability fees paired with a communication campaign would most likely garner much better results than 14 out of 15 vaults being liquidated.
#3 Increased time between execution and introduction of increasing the liquidation ratio via dss-lerp
The Maker holders and users both need to be considered and treated as separate entities in the offboarding process. After an executive proposal receives voting approval, Maker holders receive a 48-hour window prior to execution. As a user, I believe a similar window of time should be granted to me starting at the execution of the proposal and is ultimately a delay on the liquidation ratio beginning to increase using dss-lerp. I believe MakerDAO owes it to the community to ensure there is a timely and orderly process for spinning down end-of-life products. Pair this time with recommendations from #2.
#4 Adequate notice prior to the introduction of increasing the liquidation ratio
If #2 and #3 were to be implemented, it would allow proper time for communication to be circulated regarding the upcoming offboarding. An example of a complete lack of information, there are no posts on Reddit regarding the delisting of Aave within the Aave or Maker subreddit. The only post noted in the Maker subreddit regarding these pending changes was simply titled “Executive Vote: November 19th” and was posted 45 minutes after the vote was passed.
#5 Pre-defined criteria and requirements for signaling offboarding of requests
From signal requests and comments, it appears the current business model is to have only vaults that are profitable right now. Through my reading of comments, I found that Oracle costs have decreased by a magnitude of 10 between V1 and V2. With that fact, plus ongoing discussion of the future of L2s would it not be best to look past the short term? It seems the criteria given for the offboarded collaterals was “not profitable” but what were the business goals originally? Is $150,000 annually the goal for all collaterals then?
#6 Cooldown on Signal Requests for offboarding collateral
With my Aave position being closed and seeing Matic being voted no on the original signal, I was thinking of opening a Matic vault. I’m glad I didn’t as I found it somewhat surprising to see Matic up for the second round of offboarding voting, especially given what seems to be confusion between the teams in the comments. Given the current speed in which collateral can be offboarded once approved, I would say the trigger which activates that process should be used with great reservation; also continuous voting on a topic reduces confidence in the system and increases voter fatigue.
Much like the need for easier keeper systems, there needs to be an easier way for alerts to reach users that want them whether that comes from within the Maker system or community. I feel I had done my reasonable due diligence yet was caught flat-footed. Nikolaj from DFS stated, “We tried posting about this in our discord, and we did try sending an in-app notification, though neither of those is really optimal obviously”. I’m not technical enough to know the roadblocks, but a text via Twilio of “Hello vault owner. Guess what we just changed…” after preregistering for the service is something I’d pay for.
The process to offboard Aave as an end-of-life product has been handled very poorly. The speed of execution resulted in a lack of adequate time to effectively communicate to users through the available channels. Ultimately, the current process of offboarding has caused 14 of 15 Aave vault users to experience financial repercussions which could have been easily mitigated. I’d love to see this end with my financial losses from this being resolved but ensuring the lessons are learned is vital, and I’m able to provide some from the user’s perspective.
The final summarizing thought would be that Maker acted pennywise for its own expenses but pound-foolish with users’ funds.