[Informal Poll] mint MKR to fund MKR/xDAI LP pair

Disclaimer: this was originally a “Signal Request”. I retagged it to “Informal Poll” after some feedbacks in the MakerDAO’s chat.

Overview

Gas prices are getting higher and higher. The rapid growth of Binance’s BSC is showing us that, while perhaps not the final answer, sidechains will play an important role in the next few months.

xDai (official website: https://www.xdaichain.com/) is an Ethereum sidechain with dPoS (delegated proof of stake) mechanism. It is one of the most promising scaling solutions that works today. It is a direct competitor of BSC and it is interesting to us because:

  1. it is more decentralised (in fact I will propose another time that MakerDAO could run a Validator on xDAI)
  2. gas is paid in xDAI (1:1 backed by DAI), and so the success of xDAI seems to be linked to that of DAI (and so of MakerDAO).

The Problem

Currently the xDAI chain holds ~40m usd worth of assets that have been bridged from Ethereum mainnet (this includes more than 7m DAI). Source: xDai (xDAI) Explorer

This number is growing quickly (it was ~22m about 10 days ago) but is still low. What is needed are more Liquidity providers moving their assets to xDAI.

For example, in the following screenshot, you see how horrible the MKR/xDAI pair is on Honeswap (https://honeyswap.org/), an Uniswap clone running on xDAI:

Proposal.

I propose to:

  1. mint (or buy in the market) a number N (example N=1000) of MKR.
  2. take a corresponding amount of DAI from the SB (now (~2.2k * N) DAI)
  3. Act as LP on Honeyswap on the MKR/DAI pair.

Technically, this will be done manually using the mandated actor multisig to buy MKR and add liquidity on Honeswap: xDAI accounts use the same private keys as in Ethereum, furthermore Gnosis multisig is compatible with xDAI (see source: here).

This would be done gradually (to manage risks with usage of the xDAI platform) over the course of a few weeks.

The expected result is:

  1. help/boost the growth of xDAI
  2. make MKR one of the most liquid tokens on this network.

(see https://info.honeyswap.org/ for an overview of statistics on Honeyswap).

How many MKR do you want to bring to xDAI for LP?
  • 50 MKR
  • 100 MKR
  • 200 MKR
  • 500 MKR
  • 750 MKR
  • 1000 MKR
  • 1200 MKR
  • 0 - I don’t want to do that.
  • Abstain

0 voters

7 Likes

Note that creating MKR for market making on an AMM is not really the same as minting MKR in a flop auction because:

  • MKR (and Dai) remains on the Maker balance sheet and so, can be burned back by the protocol at a time the protocol chooses

  • It is generating trading revenues while inside the AMM.

So it’s not really the same as inflating the MKR supply by 1200 all at once. It’s more like the system sells off a bit of MKR when the price rises, and buys back a bit of MKR when the price falls (the amount is equal to the impermanent loss in the pool).

I see this as a way to bootstrap some TVL in a sidechain that is more amenable to decentralization than the other one, improve MKR liquidity, and earn some small trading fees for the protocol.

5 Likes

Yes exactly. It is a balance sheet manipulation (assuming the AMM code is safe, of course, which is a reasonable assumption since HonwySwap is a clone of Uniswap and it has been running for 6 months).

But if people are not comfortable with minting MKR at all, we can just buy MKR in the market using the DAIs in the SB. That will work as well.

Just to add a point: even on xDAI, USDC is just behind us.

USDC: 7.3M (blockscout)
DAI on xDAI: 7.9M (Dune Analytics query)

Adding liquidity can sure help. I think MKR should not be the priority. Liquidity is super thin on many DAI pairs.

1 Like

Mint OR buy are two very different proposals. Maybe decide which one before posting. Right now I do not know what I am voting for.

Should we really be pursuing sidechains for this type of amounts?

The title says “mint”.

I meant mint, but in the parenthesis I added what could be another option.
But I agree with you that it is just confusing. Sorry about that.

Maker already had a validator. See this thread.

Not sure if this is still up or not I have not checked.

As to Maker itself putting MKR on xDAI and backing a LP in Honeyswap. Honestly would rather do something more productive with funds.

One single person could pull some MKR over and fund the MKR/xDAI pair in Honeyswap. If one larger MKR holder doesn’t see this as useful why should we?

Personally I think it would be a good idea. I have been trying to put up liquidity for some smaller communities (not enough to be sure) and I will see once delegation comes on line whether it even makes sense to continue paying $10-20/vote for MKR as this is pretty expensive for the size of MKR stake I have.

I simply don’t have enough liquidity to put up something to get some trading going there.
Interestingly MKR on xDAI can’t easily do anything on Main net so this would be MKR that is effectively locked both out of governance and ES or anything else governance wise. I have to think it would be a thorny issue to be able to use MKR on some sidechain/L2 to control the functioning of MKR on main net.

This keeps making me think a Maker fork to xDAI is probably the most logical way to approach this. Then just fork MKR mainnet balances to some version on xDAI and just go from there. The whole minting of DAI generally becomes more complicated and honestly I have not even wrapped my brain around the idea generally but this is probably the best way to get MKR on to xDAI. HOnestly the devil will be in these details.

The longer Maker waits to at least think about this the more chance sidechain/L2s will just implement other solutions. If people want to trade MKR on sidechains well they can put up the liquidity.

So I am voting no on this even though I personally would like to be able to trade MKR on Honeyswap.

1 Like

Unfortunately this is not the case.
Mariano (@nanexcool) is running the Validator as a private person (see xDai Validator (again) - #10 by nanexcool).

Currently his validator is still called “MakerDAO” but Mariano told me that He will change the name soon enough:

Yeah that’s the point of the proposal. Maker can mint both DAI and MKR for free. And by putting them on LP would be basically a book-keeping operation without losses. (it’s not like printing DAI or MKR and selling them in the market).

Fair enough. Thanks for explaining your point of view!

THis is not entirely accurate. Both MKR and DAI are sourceable from those contracts so in the loosest sense the DAI in that contract acts as a claim on deposited assets in the system. MKR is the backstop. To the markets you are both minting MKR (unless you buy it with DAI from surplus) and minting DAI unless you again use DAI from the surplus.

I am completely against minting to do this - the real way would be to simply use DAI from surplus to buy MKR and pair it. Then there is no issue.

Yes, as @Planet_X observed earlier, I kind of considered both options when preparing this Informal Poll, but I was more inclined towards “minting MKR” rather than “buying MKR” with the surplus.

But fair enough! It would be great either ways imho.

I agree 100%. I hope we can do something soon.

Perhaps not minting (since this is seen in a bad way here … and I am fine with that!) but yeah, buying financing the MKR/xDAI pair (or other pairs as @SebVentures suggested) with the surplus money would also be great.