This thread is intended to be an expansion of @ElProgreso’s thread about the potential need to slow down (which can be found here). That thread centered on some comments from @cmooney on the December 3rd G&R call two weeks ago.
This thread was inspired by @ElProgreso highlighting a different comment from @cmooney in the B.Protocol informal poll thread. I fell the topic at hand is deserving of a new post because the original thread centered on the question of the overwhelming amount of work and pressure on the Smart Contracts team and the risk that brings, where I intend this thread to center on the entirely different risk we will be facing once the Maker Foundation “turns over the keys.” Given today’s events with the PSM, I feel it is an important discussion to have.
We as a community obviously take risk management very seriously. Anytime a new proposal is brought forward, there are countless people sounding off on the potential severity of the risk such a proposal would bring (myself included). However, IMO up until this point we have not been “playing for keeps.” Again, this is not to say that the community hasn’t been taking risk seriously up until this point, but rather up until this point (and for a few months longer) we’ve had the Foundation as a backstop. In other words, so far when a mistake or oversight took place, as long as we were able to shut it down before the platform was consumed, it could be viewed as a learning experience. The Foundation would still be able to pay key contributors and “full-time” contractors so as long as we didn’t lose the trust of the broader DeFi community we could pick up and build stronger. Today we got a little taste of the monumental amount of risk we are playing with thanks to the realization that we almost put a DC of $500M out of the gate on a brand new smart contract. To be clear, I was someone who voted for this exec and didn’t even realize the true risk it represented. The first bit of this post has been sitting in my drafts for two days and still made that mistake.
But as much as the PSM debate today (on Rocket.Chat and the forums) highlights the need to slow down, there are many sentiments leading up to this point that are equally troubling when we as a DAO eventually take the reigns and have to find a way to get everyone paid while keeping the system safe. In particular, I see a reoccurring dismissal of “we are already exposed to this risk” when objections are brought up to new proposals/vault types/collaterals. While it is certainly worth noting that the community has already stomached some platform risks, expanding our offerings generally means multiplying that risk. As a portfolio manager you wouldn’t excuse risk management concerns for an option strategy simply because you already hold the underlying stock and are exposed to its risk. Even in the situation where it is the exact same type of risk, you wouldn’t justify buying more stock because it’s already in your portfolio. We have to start thinking of risk more holistically.
To that end, I personally believe the surplus buffer is a great place to start. There is some serious disconnect when we (again myself included here) say “well lets start with a small DC of $5-10M just in case we’ve missed anything” when we only have $4M sitting in the reserve. Obviously, compared to $1.1B, $10M is pretty small. But once the foundation steps away, we will have to ensure we can pay ourselves for working on new developments and maintaining the old ones. Even if an error causes a “small” loss compared to the DAI in circulation, the loss could be crippling to our ability to self govern and pay to retain talent. If all our fees must be diverted to rebuild the buffer, we could potentially be put in the situation of trying to convince MKR whales to devalue their holdings in order to keep our payroll going. Yikes. A much larger surplus buffer seems like a good place to start, IMO.
Above is obviously an extreme scenario, and I don’t mean to imply that we are one small mistake from collapse, but rather that the stakes are constantly getting higher, and will take a colossal leap once the Foundation is no longer behind us. We must increase our caution levels in kind. In order to keep building and spreading the use of DAI we are under no obligation to keep rapidly expanding our collateral type offerings. There are several risk management reasons why it makes sense to do so rather than just keep increasing our current DCs when they get above 75% utilization, but all the reasons for adding new asset types go out the window if we’re not confident we can safely deploy them. I think another good idea for helping with this problem is implementing an prioritized task list. We could allow the DAO to vote up or down items on this list, ensuring that available talent is finishing the implementation one item at a time. While this would slow the expansion of the platform (and potentially divert resources and attention span to the list), I believe it would give more time for sign off abs sanity checks rather than the current system where projects (like PSM) are being pushed through because they are a priority and the community starts to wonder what’s taking so long when they see all the new deployments that were lower on the priority list. Just some ideas to get the discussion rolling.
I hope this is not seen as a post to stir FUD, because to me it is a post celebrating how far we’ve come and the huge step we are about to take. I believe there are plenty of areas we should be moving fast in: recruitment, contributor compensation, community development, and spreading the good word of MakerDAO far and wide. I am still new to this community, but to me this is the most exciting thing in the world right now. By 2030 I see a world with over $1T of DAI in circulation. We are changing lending and bringing true financial freedom across the globe.
I would like to hear your thoughts on how we can prevent our appetite for growth and improvement from putting the system at risk. Maybe you think I’m full of it and talking out my ass. Either way, this is the place where we govern and I think it’s high time we engage in a discussion on how we think about risk in light of soon having no backstop to fund our endeavors should something go wrong.