[Informal Poll] Creating a Bite-Rebate Contract for Keepers Acting on Small Vaults

Totally Agree with you on opening Vaults as Risky and not recommended for inexperience risk takers/investors. However, hard disagree on the Accredited Investor rule. It is an old worn out rule from the1930’s, that should not tell the common human being that if you have $1 million dollars your brilliant, but if you Don’t have more than a million dollars, you’re too stupid to take on Risk. You and I probably know a lot of wealthy people that are pretty dumb, agree? Luckily there has been a nice push by many to get this turned via Reg D and Reg A+.

And if you and I believed that the Accredited Investor rule does work, shouldn’t the entire Ethereum community be accredited? Should we also make sure that a new Vault that draw more than 10,000 DAI be accredited? Maybe fill out a KYC/AML form?

You exaggerate my position and then disagree with it. To bring the argument back to reality, we’re talking about raising to dust parameter up to around 2500 DAI. Is that really such a high bar? Are we really pricing out lots of small investors for whom leveraged trading is not an excessive risk?

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Not exaggerated–perhaps you misconstrue–but the Accredited Investor Rule for many Americans is a subject that many have spent time and resources to change via lobbying in Wash. D.C., in order to make it possible for the average Jane and Joe to have a chance at investing in the next Airbnb, Roku, etc. Unfortunately, we have a different opinion of such. No worries, all good.

With regards to raising the Dust-- and your questions about “is it a high bar”?

It makes no difference to you and I if it’s 2,500, 10,00 or perhaps even 100,000 DAI. For me, fortunately I have no need to open a Vault. But as an MKR holder, I do expect product-market fit. And I also agree with many here that the security of the protocol is currently, priority number one (1). Hence, we can do 2,500 – The majority of Average Jane’s and Joe’s could careless about Maker/DAI–I highly doubt that 1% of London’s population has ever heard of DAI. So, it won’t make a difference to the success of the protocol, or take it from a hand-full of users to millions in the next 12 months (hopefully I am dead wrong), whether the Dust is 500 or 10,000 DAI. So, you’re right – we are not pricing out anybody.

As I told Schuppi, we can agree to disagree :slightly_smiling_face:

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Hey @Joshua_Pritikin I want to thank you for bringing up some points that I honestly hadn’t thought about with regards to risk for the platform. While we still fall on different sides of opinion, being more aware of how regulators could see our product offerings is something I need to do. While I’d like to express it a little differently than @ElProgreso, I also agree that not bending to unnecessary (and unhelpful) practices of CeFi is one of the things that make the DeFi space in general, and Maker in particular, so exciting.

I wanted to focus some push back on this sentiment in particular. I agree fully that our current set up we are not getting compensated for the risk these smaller vaults pose to the protocol. But I think proposals like this poll (which could potentially fund the gas prices for hundreds of liquidations) can offset the risk to make the smaller vaults a benefit to MKR holders.

I don’t think the perception that smaller account holders cause more work for the protocol is entirely fair. Larger vault owners have much recourse within the legal system if they feel wronged by Maker and thus pose a different set of dangers. While it’s easy to dismiss complaints people have with being liquidated, having users more willing to engage with us and tell us where are blind spots are is a net positive. After all, this is a DAO and our strength comes from having many different people with many different skill sets contributing to the organization as a whole. If we start pricing out people from the platform we start losing a lot of valuable thoughts and opinions that otherwise would have been happy to stick around and help improve Maker even more.

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I would like to offer my full support to ideas like this, which ensures that we don’t price out users.

I hope to get support from MKR holders to solutions like this Bite-Rebate contract for keepers acting on small vaults. I’m not sure how much would be enough for our risk team to feel that we have with it offset those important risks we have with small Vaults. Maybe there are still some others solutions out there which could be easily implemented as well, but if this is our best shot it has my full support.

If a solution well prepared and analyzed and easy to implement like this goes on-chain and MKR holders oppose to assign a small percent of the Surplus Buffer in order to keep small Vault owners in our system, I hope that some of us like B.Protocol team be happy to support this cause. I’m happy to donate 1k DAI as well to support this initiative if that’s what is needed.

I’m also supporting here all those who are in this moment learning about DEFI, and those who will learn about it later. I have too many good friends in Latam who have in last months ask me to share “my knowledge of DEFI”, I’m not that knowledgeable; but for many out there, creating a wallet in Metamask, understanding the current dapps, understanding what is getting loans to keep your exposure to ETH, leverage positions and many other things that DEFI offers now is “a very complicated matter”. I’m talking here of people well instructed, even many of them with deep understanding of programming… even though “DEFI is a complicated matter”, “to participate in DEFI you need to study a lot”, and for many of them “DEFI is simply a space that only reach people can use” (biggest issue being here GAS prices of course).

I’ve done some “webinars” and the first thing I’ve always shown is how to open a Vault in MakerDAO (typically using defisaver.com or Instadapps). Last month I had similar talk, and the 500DAI dust was something that I didn’t mention in that presentation… later when some of them tried out by themselves, they gave up completely when they knew they had to give their first steps with thousands of dollars instead that with the 100 they wanted to experiment with.

Most of the people who give their first steps in DEFI, do it with a few bucks, this is not about how rich or not they are, it is that they don’t want to risk their monthly salary in something they don’t understand very well. Sadly, we’re debating a topic here which will not even give them that possibility to learn.

I completely respect your point of view on the matter @Joshua_Pritikin, but for me this has deeper implications, IMHO this translates to: “we should not encourage them to interact with MakerDAO”. I’ve loved MakerDAO since I learned about it, and I really want to talk about it to others, to mention what it could be for the future of the financial system, for the future of the world in fact. We’re not simply not encouraging small investors, we’re not encouraging the new wave of “DEFI users” to learn about us, to come to this forum and propose ideas, we’re in fact with what is being discussed in Signal Request to Increase the Dust Minimum closing ourselves to a fluent wave of new members, skilled and valuable people that will add immense potential to our community.

In fact, I entered this forum because I opened a Vault!, and I opened a Vault cause Maker was the first saving/lending platform in every list. I really would like to keep that door open, and would like to continue talking about MakerDAO to the commoner in 2021, this could be a very important year for DEFI, if the first thing users see is Compound and Aave for earning interest and borrowing stablecoins, I really think that we’ll loose our current position, our inflow of good and skilled people, and maybe even our complete DAO…

As @ElProgreso recommended to all of us: Stay Grounded Maker Community. Stay Grounded, which translates to an important phrase in my natal country: “No dejemos que la fama se nos suba a la cabeza”.

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ooooffff! I wish I could like this :point_up: 100X

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nice that you are bringing this forward @prose11 - even if I am not convinced we should go that way in the first place :wink:

to convince me:

  • what are the projected operational costs for that over time / per vault
  • how is this going to be funded? just by occasional sucks from the vat by governance?
  • do we need to keep this with liq2 or is liq2 fixing the issue itself?
  • can’t this be used to game the system (creating small vaults on purpose, if the long does not work out i can self-liquidate me knowing I get a refund of the bite-costs?)
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OK, but then the Foundation should pay for that feature. They paid for the current design that is requiring constant patches. Without patches - this system is dead/unusable for most of us in a few months. It’s OK that they don’t want to fund the next major DAI release, but they should at least help patch this release and keep it afloat for at least one year.

Hey @ultraschuppi thanks for the encouragement, even if you’re not sold on the idea it means a lot to me that you’re willing to engage with it. Your spirit of moving quickly to improve the protocol was what inspired this to get done so quickly, so I really appreciate hearing you’re happy that this is being brought forward.

I’ll try to respond to each of these points as I understand them, though I fully defer to @yaronvel for explaining the technicalities behind it.

Little hard to answer this one as the main factor for determining costs is future gas prices. The nice part is once this that if this is implemented the only operational cost is keeping the contract funded. At current peaks in gas prices, we’re looking at the initial 10k DAI seeding funding between 100 and 200 small vault liquidations.

Yes. In the future if this proves to be a viable solution we could set it up to function as a percentage of SFs generated, but the hope is that improvements to our liquidations process make the need for this contract obsolete in the near future.

A lot of people in the community (myself included) seem to be under the impression that Liquidations 2.0 will fix a large part of the issue at hand. However, @yaronvel posted here that currently it appears calling bite in liq2 is not much cheaper than in 1.2 currently. We’re waiting to hear back if the devs agree.

The short answer is no but one could try. Basically the rebate is only given to the first person that kicks off the liquidation (and it only covers the gas fee from doing so). In the event that someone could ensure they would be the first to call it on their own vault and win the bid at a discount (without having to submit further bids that would not have their gas fees refunded) they might be able to recover their own funds close to what they were worth before the auction, but the additional gas fees from separating the position into smaller vaults would make this an expensive endeavor just to break even (not to mention the cost of infrastructure to ensure they could submit the bite first and win the auction).

Let me know if that leaves any more questions or if something appears faulty in my explanation!

Also wanted to give a huge shout-out to @smaugho!! Your generosity and commitment to keeping Maker accessible literally brings tears to my eyes.

Just wow. We are so lucky to have people like you in the community and your potential financial support makes this idea even more suitable for testing.

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I am on your side, and agree that this feature is needed.
I am just emphasizing that my proposal to implement it myself is for something external to the protocol, which as a result entails very low risk, and therefore I can do it over a course of one weekend.

Anything more, is not something I am sure I have the time to do on my own,

So initially I was under the impression that liq2 will fix the issue, but now I am not so sure, and issued a query to the smart contract team here.
My intention was to have something with a fixed cost, that will serve as a temporary patch, until liq2 is live.
And I was offering to start with 10k DAI and see how it goes.

Now I am less sure that the current implementation of liq2 will solve it, but i think a small change in liq2 could solve it.

liquidation penalty is 13%, and the minimum vault is 500 DAI. so we just need to make sure the rebate is smaller. And then self-liquidating is not profitable.

In general the idea is to just take the bite incentive from liq2 and put it externally to the protocol, as a quick workaround until liq2 is live.

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Before we get into politics:

  • What happens to those vaults if no one is biting them?
  • What is the cost of that bad debt?

Is that cost higher than the subsidy + the implementation costs + potential new risks?

I want put emphasis on the implementation costs. It’s not like we have extra resources lying around.


Going back to the politics (not really, but my 2 cents):

  • I don’t think anyone believes that MakerDAO is raising the dust to “outprice” smaller investors. (DeFi has become less inclusive in general because of the current limitations of Ethereum. #ETH2 #EIP1559 #POS #L2 #soon
  • Usually subsidies are a bad idea. We could speak next about the real cost of food, or the type of energy we use. We can also start thinking about what else we could subsidize. #WenAirdrop

I can think of a couple ways that we would implement this without adding work to the developers. For example, MIP14 (not sure if there’s something simpler) + donations into a wallet, someone monitoring the bites, and manually sending rebates. I’m sure there are better ways of doing it. :man_shrugging:t2:

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In liquidation 2.0 this subsidy is built in.
So the suggestion here is to just take the subsidy part from liquidation 2.0 and implement it externally to the protocol.

That said, now it seems that the subsidy in liquidation 2.0 might also not be able to handle small vaults. So this undermines my original thought of having a temporary patch until liquidation 2.0 is live.

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This poll is set to close soon, with pretty low voter turn out. One last plea for people to share their opinion on the matter! It seems like there is some support for sure, but some noted push-back on the idea of using subsidies to stabilize the system.

@cmooney shared some interesting points on yesterday’s Governance and Risk call, surrounding Liquidations 2.0 already having a similar subsidy structure. I don’t know if you have a moment to share some thoughts on this post Chris, but if you do it would be greatly appreciated!

I voted no on this just because I would prefer to go with a more general solution. Biting vaults is an issue which will be resolved by LIQ-2.0, but there are many other functions which require altruistic actors to maintain such as spot.poke(), jug.drip(), dcIAM.exec(ilk), and the new PsmFlipper.

I’ve created dss-cron to do exactly that. I considered doing a fixed rebate calculation, but that could potentially open up an attack vector which allows anyone to drain funds from the DAO at the highest possible speed. Instead I opted to go with a steady increase of the bounty to enable competition to bid on the lowest price.

That being said, I think EIP1559 will be exposing the new base fee which will be very helpful to determine is someone is placing a competitive bid or they are just wasting money. Once that comes out we should be able to do the fixed refund + tiny profit method.

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There has already been spam attacks done against the protocol in the past. Wouldn’t this kind of uneconomical subsidy just further incentivize spam attacks? I think this effort and resources should go towards building a real layer 2 solution that actually deals with the real problem instead of getting stuck putting on band aids.

Unfortunately liquidation 2.0 will not be able to incentives biting small vaults (as otherwise the tip will be bigger than the penalty). At least unless the devs will agree to add the tip to the tab.

Given LIQ-2.0 would not solve it, it also does not make much sense to implement this temporary patch.

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spammer will lose more than the rebate. And more generally the DAO will profit more than the rebate loss.
That said, as I said in previous replies, since liq 2.0 wouldn’t solve it, I no longer see a need in a temporary patch.

If you can get layer 2 solution for $10k, and 0 dev work (as I suggested to do the implementation myself), then go ahead…
That said, given liquidation 2.0 would not solve this issue as well, I agree that this concrete patch is not needed.

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I changed my vote to NO, after realizing that LIQ 2.0 will also require high dust level, and hence there is no point in spending effort towards a temporary patch.

I would recommend the community to try and make LIQ 2.0 to support low dust levels, as IMO it requires a very minor change in the code.

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Given the recent contributions and voting shift in the poll, I am deciding to close this poll a few hours early. Thank you everyone for the thoughtful comments and debate.

It seems that this solution is not right for the time being, however I still believe we can come up with one that is worthy of our time and resources. To help find out what that idea might be, I started a new Brainstorm Thread in hopes that we can aggregate thoughts there and pursue a new path forward. Wanted to offer a special thanks to @yaronvel for his work on the code and for all the time he spent answering questions about this idea.

I’ll be tagging everyone else who participated on this discussion here to say thank you, as well as to encourage your participation on the Brainstorm. But even if you don’t have the time to keep discussing this topic, I want you to know how deeply I appreciate you engaging on this policy that means so much to me. @ElProgreso @mario @Joshua_Pritikin @bit @g_dip @smaugho @ultraschuppi @juanjuan @hexonaut @Replenish2030

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