Forum Poll: Deciding the Peg Stabilization Modules Implementation Timeline

Hello, I’m interested in this topic from Japan.
I can agree with this proposal but it better to consider with these question.

  1. How many ratio do you plan to have Centralized stable coin as collateral?
  2. The priority of adding “Centralized stable coin” as collateral. I could find it in MIP8 but I couldn’t find process of how each teams turn on greenlight for Smart contract, Legal, Oracle, Risk.
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I don’t think this is clear yet. One of the problems we have is that, aside from the innate incentives in the protocol, there’s not a way to quickly helicopter in new Dai supply to satisfy market demand. This is really only a problem when Dai is above the peg, as we have several ways to sop up Dai supply during periods of less demand (namely, a price below peg which encourages vaultholders to repay, higher stability fees that discourage long-term leveraging, and the Dai Savings Rate which encourages lockup.)

Since the only real “problem” Dai has is that there’s too much demand for the system to scale quickly enough, I’d argue that the low-end of the band should be set directly at the peg, and the upper band, the buy price, should be some amount higher than that, and at a level that does not discourage market making. This would allow the PSM to fill with USDC when it’s needed, but clear out when we’re back at peg, and might even be a valuable metric for considering whether we are “at peg” or not.

In this scenario, the PSM is only utilized in times of Dai demand, and the proven facilities of stability fees and the DSR can be reengaged to manage the peg on the other side of $1.


I like this idea. We have more than enough tools to deal with Dai being below the peg but are lacking the ability to reinforce the peg when Dai is above the peg and we are already at 0% rates.


What do we do if there is always Dai demand? Keep taking more and more USDC exposure on>?

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@rojosnow @rkapurbh @alfie @two-cheers @Deleuze.G

Apologies to highlight you, but you guys all have very new accounts. If you could make a brief comment about why you’re voting the way you are that would go a long way to convince me that you’re all real people.

Additionally we have @Jenn @Matthew_Cooper from Maker that have only just made accounts on the forum (presumably to vote in this poll). I’m glad you guys are taking part in the governance process for the first time. Can you share any thoughts as to why you’re voting the way you are?

Reminder: The PSM Forum Poll will be closing in 1.5 hours.

I have a lot of concern over this Peg Stabilization Module. We are headed towards 1 Dai = 1 USDC and if that is the case why use Dai at all and not just base the whole system on USDC. Something feels very wrong about getting so tied up with USDC. We never intended on having them connected to the system at all when we started.


This poll has now finished. From the results it is clear that most voters are in favour of implementing the PSM in some form over some timescale. Looking long-term, this looks very promising for the implementation of the PSM.

That said, in accordance with my statements prior to poll completion, we’ll move forward on this issue in the following way. I think this path is a fair compromise given the circumstances surrounding this issue.

Because the expedited / emergency option did not reach 2/3rds consensus, we will not be implementing the PSM in the executive on Friday.

Instead, we will follow the next fastest option of implementation in a few weeks. In practice, this means that we will vote on the PSM in the last week of July*, having discussed it during the month.

There will be a chance to discuss the PSM in every governance and risk meeting between now and the end of July, starting this Thursday.

I kept track of potential sybil accounts voting in this poll. I think it is very unlikely that sybil-like behaviour affected the result, if indeed any was present at all. I don’t think that this remote possibility justifies invalidating the outcome.

Thank you all for voting, I’m looking forward to hearing from many of you in the governance and risk meetings over the next few weeks.

* It is always possible that a more serious emergency may require implementation before the end of July. That said, the bar for this is going to be quite high given that this has failed to pass as an emergency measure once already.


I’m with Maker but registered under my personal account. Sorry for the confusion. Nik or Charles can vouch for me, Robert Jordan. :wink:


Hi! For those of you who I haven’t had the opportunity to interact with yet, my name is Charlie. I work at Paradigm and spend a lot of time on our MKR position.

On the PSM & Timeline
We are opposed to the implementation of this PSM proposal on both substantive and procedural grounds. We share @equivrel’s concerns that:

  • it will likely exacerbate the dynamics of COMP-driven exogenous demand for DAI (i.e. will not return it to the peg),
  • it will not provide ratable compensation for those risks, and
  • it could be difficult – if not impossible – to unwind the facility without causing extreme dislocations in the market for DAI (e.g. an emergency shutdown).

Given those points and the generally polarizing nature of the issue we would oppose an implementation of this PSM proposal. While any path forward is likely to be contentious, it is especially critical that the community feels it has had time to fully consider the menu of options and subject each to a high standard of scrutiny.

Of course, governance is inherently messy so we hope to avoid overly prescriptive suggestions. The only procedural point we feel strongly about is that a public MKR Poll is appropriate before any concrete proposal(s) are put to executive vote.

On the broader issue of the peg
@cyrus, @equivrel, and others suggested that some context on how we think about the broader issue (DAI>$1) may be helpful to understanding our perspective on the PSM.

It’s our view that expansion of the acceptable collateral supply in response to excess demand at the zero-rate barrier is, inherently, a decision that MKR holders shoulder the risk rather than passing the cost on to DAI holders. We are not dogmatically opposed to relaxing collateral requirements in order to relieve pressure on the peg; in Maker’s short history it has frequently been the most practical option.

But like any tool there are limits to its safe application – returns on supply expansions diminish quickly if you stop moving out on the risk curve, and Maker can only take on so much before those risks accumulate into a credible threat to the system’s long-term sustainability.

The potentially fundamental nature of @equivrel’s concerns may be an indication that we are already up against that barrier and that it is time to more seriously explore alternative mechanisms (e.g. negative real rates) as necessary for steady-state maintenance of the peg.


for 1- I think this will become Compound problem… because a high percentage of the rewards will go to DAI farmers which will force them to change the incentives.

2- I agree but this problem could be solved if we start offering to lend the USDC locked in PSM

we can create a lending platform (a competitor to Compound and aave)

and set the lending value for each centralized stable coin to 1$

that means if usdc lose 50% of its value for any reason, the borrowers will have to pay back 2 times the original usdc amount

this will offer protection against most centralized stable coins risks and offer a new revenue stream for the protocol

not to mention the spread fee

Are you thinking of flash loans or long term loans? I don’t see a problem with flash loans, but long term loans would constrain our ability to drain the PSM when DAI<1. That is, we would have to wait for the loans to mature. Maybe loans as long as a day would not create problems. I just worry that it’s a lot of complex smart contract development to enable loans that might be better invested in a more core protocol feature.

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with long term loans if the PSM get drained the lending fees will sky rocket

the borrowers will either pay back their debt or suffer from very high fees (that will go to the protocol)

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I’m curious about why you believe this to be the case. As far as I can see for the Compound dynamic there are two forces at play:

  1. Increased overall Dai supply which will decrease the APY as a fixed supply of COMP are distributed to a larger collateral pool.
  2. Increased relative Dai borrow amount which will increase the portion of the COMP rewards going to the Dai collateral and thus increasing APY.

These forces operate in opposite directions, but the second force falls off more rapidly. To see why this is let’s double the Dai supply in Compound and see how that effects the two forces:

  1. APY will reduce by 50% due to the first force. Twice as many tokens taking the Dai portion of the COMP rewards.
  2. Currently Dai is taking ~78% of the 2880 COMP tokens. This will increase to 87% by doubling the Dai supply. An increase in APY of ~12%.

The decrease of 50% will more than counter the increase of 12% which means that increasing the Dai supply to Compound is a good move no matter what the source of that Dai.


Thanks for being brave enough to actually suggest alternative solutions to fixing the peg beyond expanding the collateral portfolio with stablecoins, or signaling a desire to simply abandon the peg.

But, while it makes sense to view negative rates as an alternative to onboarding lots of stablecoins, I think it’s a mistake to see negative rates as an alternative to activating PSMs.

The PSM mechanism doesn’t inherently mean onboarding lots of stablecoins, in fact there is synergy between PSMs and negative rates as well: Having negative rates means that PSMs can provide significant liquidity and peg stability, even with low debt ceilings at all rates, positive and negative, similar to how they would function at a positive DSR/Base rate. PSMs also, in all situations, mean that the Maker Protocol can earn income from trading non-Dai stablecoins against each other.

That being said I personally think most people that are right now considering negative rates have not yet considered the ecosystem-wide ramifications of implementing them, as the disruption it would cause to every single app that supports Dai would be immense. However it’s important that the community begins serious discussion about negative rates sooner rather than later, as it will help move past the current situation where governance appears content with maintaining the status quo of the system just languishing with a broken peg for months.

We may very soon see a showdown of the only two realistic options available to the community: Onboarding large amounts of stablecoins, or implementing negative rates. If forced to choose, which one will the community pick?

However, this question actually doesn’t have anything to do with whether or not PSMs should be implemented - they are an equally useful mechanism for creating a more stable and liquid peg in both scenarios.


@BrianMcMakerDAO and @cmooney very much would like to see this response.

I don’t think MKR holders are being denied anything since anyone can put up an on-chain poll as well as post a new executive.

I am really mixed on this. I don’t think the world runs around US holidays. Perhaps a general change regarding what is needed poll wise to proceed on an ‘emergency’ measure is what is required. While I don’t know how to do this my understanding is that anyone can put up an on-chain poll so if even one MKR holder with ability to do this could put up such a poll is there anything stopping them? Or is this kind of a technical issue in that other things need to change in the governance portal as well when putting up an on-chain poll.? Really these last questions are more of a governance curiosity than anything else.

As far as I can tell we have not even polled on whether the PEG is an emergency or not so I am uncertain regarding status on the 66% needed to treat this as an emergency action. I think most are concerned about the PEG but if we are going to classify this as an emergency then once that is determined lets line up our tools to manage this. But be prepared in the sense that if the PEG is out of whack because of COMP - I am completely with @equivrel that unless we are prepared to flood the market with perhaps 200-500M DAI and subsequently soak it up when compound changes - yet again - yanking the markets change a piddly 20-40M probably won’t do enough.

I think this is telling us 4% is too high of a rate. I saw ETH facility going up on compound and wondered if people were just borrowing ETH to cycle into Maker at the 0%SF.

I literally don’t think anyone knows how much DAI would be required to bring the PEG back into line here nor what price in USDC to sell it at. My rough guess is that somewhere between 100-200M priced in the 1.005 to 1.01 range would be enough to pull the PEG down under 1.001. I have no clue what it would take to bring it to 1 at this point. Which is why I have been advocating different PSM facilities with different fee/pricing spreads and different DC’s - we need to gauge what the markets are trying to tell us on this vs. trying to dictate to markets what we want them to do with a flood of abnormally cheap liquidity that will only be paying whatever onetime facility fee to access. We literally could end up with no-one using the vaults for DAI and only generating fees from one-time swaps on the DAI-stablecoin swap facility.

Charlie looks like your Team is onboarding Georgios Konstantopoulos. Would be cool to have Georgi come on here and see what he thinks. Cheers!

More tools for monetary policy are good. I think we should have a negative interest rate discussion.

I know i posted somewhere on the idea of paying vault holders to open vaults since this would encourage taking on debt and in effect the DAI payout to vaults basically could run against future accrued interest (it doesn’t have to be paid just pledged against future interest as a kind of DAI interest redemption token given to vault holders and hence traded as a interest reducer). Now if holding some of these caused the furture SF to come down for a vault as well - that would be very interesting.

I really would like to see some proposal regarding a implementation of negative rates though as the above was the only thing I could come up with regarding negative rates that did not drain the surplus and was accounted for with a token in the vault but all of this necessitates contract changes.

If we talk about negative rates I think we need to pay attention to whether an idea requires significant contract changes, secondary wallet changes, or ?

Don’t get me wrong - I want to have this discussion I have a feeling here implementing an effective negative rate strategy is probably going to be difficult but I know there are a lot of clever people around here so perhaps someone will have a good idea that is easily implemented.

I talked about this a while back but personally i think you might be able to artificially create negatively rates by offering a vaults for DAI liquidity pools uniswap.

Granted that idea kinda was squashed by the oracle team but it still seems like a much lower effort approach compared to rewriting / auditing / deploying / and migrating new vault contracts to include actual negative stability fees.

Could post a bit of napkin math I did a while back if people are interested.

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