[Discussion] Pairwyse as a Solution for Fixed-Rates on MakerDAO

We’d like to share an out-of-box solution for the provision of fixed-rate DAI loans of arbitrary term-length on MakerDAO through application of the Pairwyse protocol built atop Maker’s credit and deposit instruments.

The Pairwyse protocol specifically solves the impossible trinity for MakerDAO by creating a fixed-rate marketplace for borrowers and lenders without restricting Maker’s use of floating rates and market-driven capital flows to maintain the DAI peg and grow its supply.

Pairwyse does this by facilitating fixed-rate agreements between DAI borrowers and lenders in a decentralized non-custodial peer-to-peer manner.

The fixed rates are produced by smart contract-automated cash flows between borrower and lender escrows relative to floating rates during the loan term.

Pairwyse additionally inherits Maker’s credit enhancements, translating them into full principal protection for lenders and capital efficiency for borrowers.

By funnelling existing DAI investors back into a Maker-centric lending marketplace, Pairwyse can provide Maker:

  1. a fixed rate facility to scale RWA and institutional vaults rapidly and sustainably
  2. freedom to apply as-dynamic-as-possible governance over DAI peg and supply
  3. a means to scale transaction volume and risk premiums in a DAI neutral manner
  4. a channel to funnel DAI holders back into Maker and away from competitors
  5. a stronger user network and loyalty through scalable peer-to-peer transactions

Pairwyse is already deployed on mainnet and requires no feature changes to the Maker protocol to create user value now. A front-end interface can be accessed at www.pairwyse.io to enable P2P borrower-lender deals.

We believe a fixed-rate marketplace can readily solve the impossible trinity for Maker in a scalable manner. As such, we would like to seek the wider Maker community’s feedback on Pairwyse and its utility towards scaling Maker.

@SebVentures @Aes @williamr @Primoz @Nadia @PaperImperium @Tru_Greg @g_dip

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What does the expected volume at launch look like?

What does the regulatory picture look like for this marketplace?

This basically “wraps” the vault at collateral to create this? Or is that not a correct description?

Thanks! This looks very promising!

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Thanks @PaperImperium

Yes the smart contract wraps the vault.

We expect:

  1. by the end of 2021 to have $2 million TVL
  2. assuming either Sushi LP or Uni V3 goes live on Maker soon - $10 million TVL by mid 2022
  3. assuming Maker prices RWA prudently as spread + DSR then $100 million TVL and scaling from there to the billions

Regarding regulation:

We have had compliance analysis done by multiple top-tier US lawyers. Different ones have given different answers.

The main distinction is if this will be treated as A. placement or B. swaps

If B. Then its important how we are decentralized and that changes the landscape. We take inspiration from Maker in the decentralized management of the org and deployments.

If A. There are a number of things

  1. An Argentinian lawyer concluded with us that we can sell this in Argentina without license or registration. It is likely similar in other parts of Latin America
  2. In the US there may be some exemptions to take advantage of. For example: Reg D, the 270 day short term debt exemption, or the MBS exemption.
  3. We have strong relationships with a number of regulated investment banks who are happy to partner with us on issuance.
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Thanks for posting but considering many fixed rate models haven’t been successful so far. I am convinced that this will need a lot of cases to integrate into Maker model. Also, while it’s popular to mention impossible trinity around Maker, the truth is Maker system solves impossible trinity by sacrificing “independent monetary policy” as Dai minted in the Maker system has to be backed by collateral. On the other hand, countries’ currencies are unbacked and in case where for weak economies with low foreign reserve (collateral in a sesne), they face an extreme unpeg pressure. For algo stablecoins that can mint without collateral, they have such flexibility but Maker doesn’t.

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@Akiva This is an interesting post. Are you planning a session with @seth’s team on the mechanics? That would be very useful.

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Thanks @williamr

I am talking to Seth. Sometime in October (5th or later) would be good.

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Hi @Akiva you have been working on this for a long time so it is nice to see you share this post for discussion. Congratulations on making this progress.

Who do you envision to the be the Dai investor in this scenario? Is it an independent investor seeking a fixed rate of return?

If the borrower draws money at a low rate from Maker, does the Dai investor receive the same rate? Is it possible for the Dai investor to receive a fixed rate but at a higher rate of return?

Many thanks and good luck with this project!

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