I would like to see this come to fruition. I think many institutional investors would bring in a ton of value. It is just a matter of figuring out the right structure/vehicle for this.
If I could buy enough MKR to pass this myself, I would. This is part of Maker becoming the heavyweight it should be. We aren’t a quirky DeFi project anymore — Maker can be and should be in the top tier of world financial institutions, and part of that is expanding our product offerings to meet the needs of our customers.
I love this proposal, the truth maker is making a qualitative and quantitative leap in all aspects, we do not leave aside the small consumer as sidechain networks, and now with the possibility of offering services to large, I love all this that beautiful paints MakerDAO.
I think this is an important step to take in the multi-pronged approach to get the DAI supply up and secure the peg with high quality collateral. By offering permissioned vaults with predictable fees we can likely attract new types of customers both directly and indirectly. Personally I don’t think this takes away from the core principal of offering loans permissionlessly. ETH-A and the others are still available to any user that needs to borrow. This is our chance to branch out to new markets in an increasingly competitive space.
Longer term we can figure out ways to generalize this approach and open it up in terms of fairness of access, but in the mean time we need to take a pragmatic approach to get things done quickly with the tools we have. Stablecoins in DeFi are popping up and going nowhere by attempting to construct ivory towers. Real products are built by compromise and listening to your customers.
Without a doubt I think it is brilliant, there is thinking outside the box and this is something that if applied will make Maker grow. We must let Maker take the leadership it deserves by being one of Defi’s builders offering services for its potential users.
If I understand correctly, the only difference between the institutional vault and a regular vault for collateral that’s already accepted is the effective “dust” parameter. In return, they get better rates and more vault management tools. I assume the Risk CU will still ensure that we’re able to liquidate these vaults when they go under.
So why not tailor them for a specific client’s requirements (to ensure we have at least one user) but leave the vault open to anyone who’s happy to use it and keep the protocol permissionless? Whatever we offer them in terms of vault management tools might be things that can be made public, in which case, it’s a win-win.
The proposition of lower liquidation risk and lower fees is attractive no matter what you call the Vault type. And the lower risk is good for the Protocol (ignoring the issue of liquidation fees, which I feel are a necessary evil rather than a core part of the model).
What would be great to see is a set of tools that could be used by anyone (like DeFiSaver’s service) more closely integrated, and then fees and other parameters could be set for large (50m+) users.
Another way to differentiate collateral types is to let actors create their wrapped versions of assets. So Nexo creates NexoETH and Maker has an ilk for those which reflects the risk difference between ETH and NexoETH. This seems more general as a solution and focuses more on risk than on individual relationships.
edit: forgot to state the obvious which is that I am all for this proposal.
I think community first needs to decide whether such vaults should be permissionless or permissioned. I can see why permissioned institutional vaults would make our life easier, but I can also see benefits of permisionless ethos Maker maintains. RWA implementation is however already permissioned.
The other topic is regarding the benefits of such vaults, risk and business wise. I can see why having communication with these users and understanding their books/reserves and unwinding procedure helps us on risk side, which means lower rates and more long term commitments and usage.
If such vaults were to be permissionless, there are few tricks that could work. We could set
dust limit to some high value when vault is being opened by a known institutional user. After debt is taken out and DC fully utilized, both DC and
dust are again lowered, so that vault owner can safe himself in a worse case scenario when and if partial repayment is needed. But again, Maker would behave as if such vault is permissioned anyway, because it would aim to let in only those we have communications with so that we know how safe user it is.
Because such vaults would ideally be less risky than average vault at Maker, more relaxed version of liquidation ratio/stability fee/debt ceiling would probably be the end goal from user’s perspective. From Maker’s perspective, the end goal would be more DAI minting, safer portfolio and long term commitments. More DAI minting can be achieved by offering relaxed parameters and safer portfolio by knowing and communicating with such vault owners. If Maker wanted to guarantee long term commitment, origination fee (with much lower ongoing stability fee) is also one possible solution.
Are you saying that each wrapped asset is different from the rest? Do I always take them as the same, hence WBTC, RenBTC, TBTC, HBTC and bBTC, are completely different assets even though they are anchored to the same asset? How would you assess the risk of each?
You bring-up such a great point Primoz. You know, this movement of decentralization helps businesses get away from the Liability of holding/storing DATA. I think more and more companies are going to want to move away from storing Customer DATA, because it has become a liability–with all the data breaches that we hear about these days. So, do we collect KYC/AML data for these permissioned Vaults? Maybe. I say that because it won’t be Millions of Institutional Vaults, so it shouldn’t be a lot of data. Also because it complies with regulations. But ya–this is something the Community really needs to think about, permissionless vs. permissioned.
I think this is a great idea. But I want some care into thinking about having institutional liquidators because one institutional vault liquidation could basically swamp the entire liquidation system. One thing we have wanted is to keep a careful eye on clumping in CRs as this increases overall portfolio risk.
Something else I have not seen discussed which is the rate at which the system can liquidate vaults generally? Is this a by vault control in liq2.0 or is there a system value. I mean if we can only liquidate 50M/hr and have 5B outstanding we are talking 10hrs just to liquidate 500M.
I mean if we are going to go the route of institutional vaults - we better start thinking about institutional level liquidations/keepers.
It is better to play it safe, we are not talking about a few million dollars.
I think that in this case the safest thing to do is to increase the liquidation ratio, if we think about it, it is not the same to liquidate 200K as 50M. It would knock down the price of any asset by 10% or more.
@Nadia Would the permissioned vaults be controlled by Nexo or some other player for the benefit of institutional users? Presumably, Nexo or some other provider would take a fee for this service, no?
As one of the potential borrowers for the pilot, I would like to address and bring the institutional perspective to the attention of the community.
To put it simply, both modes have both pros and cons which one should take into consideration when designing institutional products. One of the main propositions of institutional vaults is their ability to offer additional due diligence into the financials, business model, borrowing use cases & overall risk profile while at the same time being a more reliable and predictable revenue channel. Similar to the collateral evaluation matrix, the protocol risk committee should take careful consideration into both economics and risk profiles of potential borrowers.
When evaluating institutional counterparties , however, no institution is the same when it comes to the complex tradeoff between it’s counterparty risk profilе, loan requirements (duration, size, collateral requirements) and revenue potential. Therefore for Maker to take meaningful market share, the ability to customize it’s offering as much as possible and create tailor-made solutions becomes critical.
Whether such customization comes in the context of an individual vault (e.g ETH-NEXO) or type vault (ETH-INSTU) to optimize protocol revenue, minimize risk and achieve other policy goals, one should make sure to first address the needs of institutions individually thus establishing product-market fit.
One drawback of using group type vaults (e.g ETH-INSTU) in a permissionless fashion only using broad limits, such as dust brings many complications and nullifies the effort of bringing in additional off-chain due diligence as an additional way to evaluate and minimize risk. If one borrower is subject to additional off-chain due diligence, it’s a given that it should be a mandatory requirement for all future borrowers as well, to the same degree of scrutiny.
In my opinion, the most logical progression would be to start with 1 or 2 pilot customers based on a permissioned protocol to establish product market-fit within a short time-frame, while in the long-run establishing a detailed counterparty risk methodology and tiers similar to the asset evaluation matrix.
Thank you all for your comments. To sum it up:
It looks like we all agree about having institutional vaults. Now the question is if we should implement a permissioned or a permissionless solution.
Both implementations will require the involvement of the PE CU. For the permissionless solution, PE should create a dust limit capable of auto-adjust after the debt is taken or/and implement an origination fee. For the permissioned one, PE has to decide how to implement whitelisted vaults, and we should look for a third party to manage the KYC-AML process. In both cases, Risk CU has to evaluate each institution to assess the risk parameters.
We have to understand how we are going to handle liquidations.
As this solution is for crypto-companies (at least in the beginning), vaults will be controlled by the companies. Once we have a better understanding of this type of solution, we could expand it to traditional institutions…although in this case, I think it’s better to have a middle company like Nexo providing this service (mainly because UI, and contractual agreements).
We should move fast on this, we need to increase Dai supply, reduce the protocol’s exposure to USDC and this could be the solution for that.
Agree, and @Risk-Core-Unit should set the Dust Limit
What are the cons or biggest perceived potential downsides to Institutional Vaults?
For my part, the liquidation in such a case, how do you liquidate $50 million without affecting the market?
But that applies to 50 million composed of smaller vaults as well. In terms of liquidation, keepers can flash loan to make it efficient but in both ways will affect the market.