I’ve created a repository called
dss-gov-rewards which houses the contracts to enable paying out rewards to MKR locked in governance.
Maker security relies on binding MKR holders to the consequences of their votes. This assumption is broken for MKR that is borrowed on a lending platform. We have solved the most extreme version of this with flash loans, but the underlying problem remains. Fundamentally, Maker is not secure if there is more MKR available to borrow than there is locked in Chief/DssGov. The simplest and probably most robust way to solve this is to pay people to lock their MKR in chief and thus keep their MKR off the market.
dss-gov-rewards is a lightly modified rewards contract from the UNI LP pool rewards. MKR IOU tokens can be deposited in, and you get rewards out. Both the staking and rewards tokens are arbitrary, so this can be used for rewards in either DAI or MKR depending on what governance wants to do. Additionally because this is a separate module from
dss-gov, it can be deployed for the current Chief as well as DssGov.
I’ve also added
DaiRewardsDistributor as an example of how rewards can be done via the keg module. The idea here is to siphon off some % of the MKR burn and redirect it to rewards. The nice thing about this is we can adjust that % to control for how much of a ratio we want of MKR on the market vs locked in governance. Alternatively the rewards can be made in MKR as well if the community desires.
Another bonus of this module sitting completely outside governance is that we can upgrade it very easily. We simply shut off rewards to the existing contract and switch them to a new contract. IOU tokens are completely opt-in to whichever contract they want, so people will move over naturally. This may be useful in the case where DeFi liquidity pools start automatically depositing into rewards (similar to what Compound does with Dai and the DSR).
This module is using code that has already been audited and tested in production, so it should be safe to use. Additionally, since it is sitting outside the core Maker system, and only interacts with the IOU tokens there is limited room for catastrophic bugs. Worst case scenario we can just turn off the reward stream and we burn a few days of revenue.
Looking for feedback on the route governance wants to take with this.
Do we want to distribute rewards in MKR or DAI?
Should we divert some portion of the MKR burner into rewards (% of profit) or should we pull it as a fixed operating cost?
What % of profit should be used? Should we target some ratio of MKR on the market vs locked in governance.
Please note that I’m expecting for historical reasons the Foundation cannot comment or be involved with this project.