During the last weeks, the community has been discussing different ways to optimize the protocol, starting with evaluating the current collaterals concerning its usage and maintenance costs, confirming that the most efficient collaterals in that sense are ETH and WBTC.
At the same time, we are having conversations with larger vault users that happen to be crypto-native companies, asking for their feedback to improve the Maker Protocol. We are focused on them because of the way they use Maker Vaults:
They have a clear use case for the Maker Vaults besides speculation. Maker Vaults are one part of the solution they offer to their clients/users.
As Maker Vaults are part of their business, they have dedicated resources preventing the liquidation of their position, making those vaults more predictable for Maker.
Usually, these companies are using either ETH or WBTC and their own token as collateral.
With the increase of the percentage of USDC in the protocol, it is necessary to attract more of these crypto-native companies and improve the Maker lending solution in a way our current institutional users want to increase their current positions.
Institutional vaults (or vaults for these crypto-native companies) will allow Maker to be more efficient in distributing loans and will help the protocol to attract these companies looking for working capital efficiency solutions.
Until now, risk parameters are set depending on the collateral characteristics. For Institutional vaults, risk parameters also consider the risk analysis of a potential borrower, and although this generates an operational complexity, it also provides a better understanding between both parties.
As these companies use Maker Vaults for their business, they are looking for solutions that enable them to give better terms to their users/clients by:
Optimizing the cost of debt, giving them the tools to predict changes on the stability fee to reduce the impact on their users
Increasing capital efficiency by creating more flexible liquidation mechanisms
Having a continuous dialogue between both parties to ensure fair terms and advance notice in the case of anything that happens
Having a longer-term commitment with predictable terms (12-24 months) to assign and manage their capital
Although, at first sight, the implementation of this kind of solution could look like something against the ethos of the protocol, we should think about institutional vaults as another type of RWA: custom vaults that guarantee a significant Dai supply on a predictable duration.
To implement this type of vault, we could use a MIP for the agreement between both parties. As they will use collaterals that are already accepted by the protocol, the condition to open an institutional vault will require a minimum size (from 50m Dai to 100m Dai).
Aave and Compound are working with a large custody platform to create an Institutional Solution for non-crypto native companies. They are planning on launching a regulated solution, with KYC, in a separate liquidity pool. While this may not specifically be what we want for Maker, we would like the protocol to be prepared to offer a similar solution that supports our larger b2b vault users like Nexo who rely on these types of solutions. Further, we want to be ready for the demand from the institutional side that is signaling their interest in DeFi yield opportunities. We have clear feedback from the major digital asset custody platforms who’s institutional clients want a more compliant access point to DeFi with fixed terms they are used to in the traditional markets.
Suppose we as Maker decide Institutional Vaults are a necessity for the protocol. In that case, we could start working with Nexo in the first type of Institutional Vaults and define a roadmap for that type of solution. We know there’s a huge opportunity, but we also understand the risk around regulators looking at us more closely if we implement some sort of a permission solution.