To everyone who I have had the pleasure of meeting in Paris, it’s been amazing to finally put faces to the people who feel like age old colleagues in this DAO. I can’t wait to see what’s going to happen in the time until we meet again.
I wanted to share an update on what Centrifuge has been working on and what our priorities are going forward and seek comments from MKR holders & community members. Our mission of bringing RWAs to DeFi always included Maker as a partner and a lot of what we built was heavily influenced through our work with Maker.
We all know how antiquated, inefficient, and oftentimes just completely broken today’s financial system is. This was a big part of my motivation to dive into crypto and probably for a lot of people on this forum as well. We believe the underlying protocols that power DeFi today are not just for cryptonative assets but in the long run will offer benefits to assets that come from the real world. DeFi will replace the banking infrastructure not just for novel virtual goods NFTs and DeFi governance tokens but also for “legacy” assets like real estate or trade finance. What does that mean? People who today buy and sell these assets on Wall Street will look to DeFi as the better way to create, trade and settle these assets.
We focus on one particular part of the financial infrastructure that we are trying to bring into DeFi and pioneer this with: securitized debt
Bringing it into DeFi will scale DeFi to the trillions of dollars and potentially millions of new users to Dai in the long run. It means not just printing a ton of DAI from some off chain collateral to fix the peg but also to get both investors and borrowers to start doing more and more with DAI (I’ve personally helped more than a dozen crypto newbies buy their first DAI to invest in RWA). Why is this such an exciting thing? Because we are actually building technology that helps both on the supply side and the demand side of MakerDAO: investors will want to buy and use DAI for investing in these asset classes and borrowers will bring in attractive collateral that can be used to mint DAI.
We have been big proponents of iterating quickly: starting out small to keep risks low, getting experience and then incorporating the learnings into improved processes. By doing so we were able to launch New Silver and have already been making the first improvements with the independent director. In this post I want to go into what else we are working on already and where we believe the future of RWAs in DeFi is going to.
New Silver is now in the top 15 of of collateral types by debt
Here is how we believe we can grow RWAs in DeFi (stabilize Maker with uncorrelated collateral, reduce USDC in the PSM, generate interest revenue for Maker and increase the usage of DAI across all of DeFi).
We have in total had over 32 weeks of security auditing on the Tinlake protocol by two separate auditing firms (Least Authority and DappHub, a team that includes a lot of the original MakerDAO protocol engineers). DappHub has published the audit of the lender side (incl. MIP22) recently here: Preliminary Tinlake Audit Report: They are performing a second audit of the borrower side (which was originally audited by Least Authority). We will publish this report in September.
We are also continuously improving the spell crafting process together with the Protocol Engineering Core Unit and helped prepare the spells using the most recent patterns for our Executive two weeks ago. This makes it a very simple and easy process for the PE team to onboard these collateral types quickly and safely.
We are also improving the operational security for our AOs and are working on a dedicated multisig that significantly reduces the risk of loss of funds for AOs due to incorrect use of their wallets. A technical spec can be found here: Multisig Tinlake Proxy - HackMD
When we started working on all this, we were trying to convince traditional businesses to bet on DeFi and Maker when no one else has. Naturally this was a lot harder and I’m truly grateful to the early AOs that believed in the vision of Maker backed by RWAs and took a risk in doing so. Some of them spent over a year on their collateral governance process.
Their courage to innovate with all of us helps convince the more conservative and more established borrowers to experiment and ultimately become users of Tinlake and collateral types on Maker. Our goal is to scale the average size of our pools continuously and have the first pools reach $100M+ in value by end of the year. Scaling these pools to ever larger sizes will also involve bringing in institutional debt investors to scale out Tinlake and ensure Maker is not the only major investor in these pools. This is an important milestone for both Maker and Centrifuge as we will start to go from experimenting at small scale to adding assets to Maker that will bring significant revenue to Maker and make a dent USDC used to back DAI.
We have made first improvements with installing independent directors for each pool to reduce the risk for investors in the pool. We have also been doing a lot of work in the background on researching how a trust structure could be used to further strengthen the recourse and legal standing MakerDAO has in the pool. We are excited to see the RWF CU proceeding with setting up their own trust and we are working with our counsel to find a way to give this trust control over the collateral that is used to borrow DAI from the protocol.
Maker relies on there being both a supply of DAI and a demand of DAI. Our pools are settled in DAI and make use of DAI for every transaction. By borrowing from Maker we create more supply but we are also working hard on bringing these assets into the hand of more people and protocols such as Aave. You could see this as competition to Maker but I would argue it’s the opposite. AOs wanting to borrow from Aave users will create demand for DAI and use DAI, it will add uncorrelated demand to DAI and it will increase the yield people can earn by lending DAI which creates DAI demand. Maker using RWA as collateral in a vacuum makes it’s peg more stable and more secure but it doesn’t scale the demand side. An overall strategy for establishing RWAs in DeFi does.
Of course we can’t do that without the help of many in the Maker community including the RWF CU, the PE CU but also others who help make this hard topic more digestible, ask difficult questions and scrutinize what the AOs do.
I hope this gives the Maker community an insight into our strategy and current areas of focus and appreciate your feedback, ideas and collaboration on these topics whether that is in the replies here or by reaching out ot us.