[Governance Poll Request] Negative DSR should be against the DAI social contract

Can we create a poll to see how much MKR holders support the idea that:

A negative DSR should never be actioned and this should be apart of the DAI social contract.

Similar to the social contract of pegging DAI to the us dollar.

DAI holders shouldn’t need to monitor every single governance action incase this is implemented so they can move DAI out of DSR to avoid the negative rates. This will provide DAI holders some assurance.


Do you think Dai holders would prefer an emergency shutdown where they would be forced to find a different solution, rather than having the option of staying with Dai even if it has a negative rate?

Unfortunately there are theoretical situations where a negative rate will be the only way to avoid an emergency shutdown. In current circumstances it’s unlikely we’re there, though, since there should still be plenty of new collateral to onboard in order to grow supply.

To clarify: It is possible to impose negative rates on ALL outstanding Dai, not just Dai in DSR. However it would require the ecosystem to upgrade their UIs, and obviously would be a huge shock to users, so it’s unlikely to ever be used as anything other than a last resort if there’s no other way to avoid an ES.

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Gonna go ahead and suggest that we table this discussion for the time being. I’d love to have it once all the chaos has been resolved, and I’d be happy to help you setup a signalling thread to start the debate and potentially come to a decision.

I’m just not sure it’s worth the bandwidth right now.


In what situations other than the peg being off would warrant negative rates over ES

Eg CDPs being liquidated below market price because DAI is severely of PEG? Leading to under collateralization when the DAI price comes down?

You cannot change a social contract at will. A negative DSR (or SF) is just a means to achieve the peg. The peg is more important than anything else (including decentralization as we see with USDC).

I agree with @rune that a negative rate could be the only way to avoid the ES. The ES could cause a huge selling pressure on ETH causing DAI users to lose much more than what they’d lose with a negative rate. The negative rate would be a temporary measure while the ES could mean the end of (trust in) DAI.

I also agree with @LongForWisdom that now it’s not a right time for a signalling thread if we still think that the current measures are working. The situation might be different in a week or two though.

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This is an interesting trade-off, one I haven’t thought about enough.

What do you mean?

This is a surprise to me. I vaguely recall a chat session where at least one Foundation engineer told me it’s not possible with the current deployment. Do you mean through smart contract upgrades? Or some other mechanism?

I also think we’re conflating things in this thread. (cc @bit).

  • A negative DSR would mean that those who left money in the DSR would permanently lose some. I previously wrote that besides a breach of trust and bad PR, it would also probably be ineffective in affecting the peg though liquidity. Though I could be wrong, a secondary effect could be that those holders completely exit Dai. But who knows, there may be many passive depositors.

  • If we talk something like TRFM (which is AFAIK not part of MCD), it’s not really a negative interest rate, rather a temporary devaluation (unless it’s used as a recurring, permanent reduction in the target rate). Compared to the other things discussed here, it’s a much more desirable way of restoring the peg, e.g. lowering the TR and then raising it back as soon as it’s deemed appropriate.

  • Negative SF is yet another different mechanism, probably with different effects.