This post merges recent discussions between @ Growth , @ Risk , @ Protocol Engineering and Nexo to propose an institutional vault offering. We are putting forward this proposal to gather community feedback and sentiment on an initiative that we believe will lead to sustainable longer term ecosystem growth.
This proposal seeks to grow the MakerDAO ecosystem, specifically regarding:
- Boosting DAI Supply
- Generating greater revenue for MakerDAO and our partners
- Enhancing capital efficiency for our partners
- Incentivising longer term borrowing commitment
- Introducing a level of borrowing rate-predictability
New vault mechanisms are introduced to promote this growth, including:
- Origination fee: will be applied to all DAI at the time of minting. This is not restricted and is open to change via Governance (specifically the Parameter Changes Proposal group). Meaning that any partner will have a lead time of 2-3 weeks before any changes are implemented.
- Stability fee: is determined upfront and fixed for a period of time. This fixed rate can be reduced as additional collateral is added.
- Vault starting size: to ensure that such vaults will mint a minimum amount of DAI in order to gain favourable rates.
This proposal puts forward two new products from Maker:
- Institutional Vaults
- Long Term Vaults
These products are intended to be created for ETH and wBTC. In the future, if successful we see this being extended to support vaults for LINK, UNI and Staked ETH depending on partner requests and risk/profit analysis.
Permissioned Institutional Vaults are agreed upon with our partners. In this case, Nexo is our institutional counterpart. The proposed terms of our agreement are as follows:
|Institutional Vault Type||Permissioned ETH and wBTC Vaults|
|Qualifying Vault size:||400m|
|Origination fee:||1% of DAI minted (not including capital migrated from an existing vault )|
|Origination fee behaviour:||Origination fee is not restricted and can be changed through Governance via a Parameter Changes Proposal. Typically this will mean that Nexo has a 2-3 week lead-time to any Origination fee rate change.|
|Origination fee future commitments||Maker and Nexo will work together to propose reductions to the origination fee if the vault size grows significantly.|
|Stability fee behavior:||Fixed for 6 months. An additional 100m DAI minted will reduce the stability fee by 10 basis points (per vault) to a minimum of 0.5% for 6 months. Stability fee reduction will be manual via an executive vote. After 6 months, open community dialogue facilitated by the Growth CU will determine ongoing stability fees. Note that these can only be increased by a maximum of 1% for each subsequent 6month period.|
|Collateral Ratio Behavior:||Failure to maintain 200% CR over the majority of any 7 day period will result in increasing the SF to 5% and increasing the LR to 150%. The 7 day period would be calculated by ensuring that 95% of the OSM updates show that the CR is equal to or greater than 200%.|
To spotlight the scale and opportunity this product presents, it is worth mentioning the following as part of our recent discussions with Nexo:
Nexo’s intention is to migrate their existing 400m vault to this institutional vault. With the above conditions they commit to mint a further 100-200m DAI targeting an initial 600m DAI. Over time, pending market conditions we can expect this to reach a billion DAI.
Nexo is improving its operations and collateral management automation to ensure monitoring 24/7, meaning that they will keep a collateralization ratio above 200% (currently and historically this has typically been above 300%).
To foster aggressive growth, Nexo and MakerDAO will explore reductions to the origination fee as the vault size grows. This additional flexibility will help align incentives over the longer term.
As described above, stability fees are fixed for 6 months. In the 4-6 weeks leading up to the 6month stability fee maturity date, the Growth Core Unit will engage with Governance and Nexo to facilitate discussion and decision making to set the stability fee for the following 6 months. Note that the maximum increase possible at the time will be 1%. These discussions will be pre-scheduled meetings to ensure cadence is managed and there is ongoing visibility to all involved. This will then proceed to a poll and/or executive vote as per standard governance processes.
Long term vaults promote permissionless borrowing for long term lenders and allow users to lock in a more stable rate upfront than is otherwise possible. This vault type differs from permissioned vaults by not offering bespoke collateral ratios or stability fee reductions seen above.
|Long Term Vault Type||Permissionless ETH and wBTC Vaults|
|Qualifying Vault size:||TBD by Governance|
|Origination fee:||1% of DAI minted|
|Origination fee behavior:||Governance can make changes to future origination fees|
|Stability fee:||1.5% to start|
|Stability fee behavior:||Stability Fee can only be adjusted by a maximum of 1% every 6 months|
|Liquidation Ratio:||Equivalent to ETH-A and WBTC-A|
These two products will boost DAI supply and MakerDAO revenue by incentivising longer term borrowing and predictability. We look forward to hearing community feedback and comments.