Know Your MIP #05: Term Lending Module - Wednesday, February 10th 18:00 UTC

What

The “Term Lending Module” (the TLM) enables Maker to buy tokenized fixed-rate, fixed-term loans. The Term Lending Module stands available to buy loans at governance-set interest rates up to a corresponding debt limit.

Lev Livnev (@equivrel) and Allan Niemerg (@niemerg) will be casting light on what this means and how it works :smiley:

Here’s the MIP: MIP43: Term Lending Module (TLM)

When

February 10, 2021 @ 18:00 UTC

Time in your local-timezone format:
2021-02-10T18:00:00Z

Where

>>> This Zoom link <<<

Or by using this:

Meeting ID: 876 6679 1903
Passcode: MIPMIP
One tap mobile
+13017158592,,87666791903#,,,,*094782# US (Washington DC)
+13126266799,,87666791903#,,,,*094782# US (Chicago)

Dial by your location
        +1 301 715 8592 US (Washington DC)
        +1 312 626 6799 US (Chicago)
        +1 346 248 7799 US (Houston)
        +1 646 558 8656 US (New York)
        +1 669 900 9128 US (San Jose)
        +1 253 215 8782 US (Tacoma)
Meeting ID: 876 6679 1903
Passcode: 094782
Find your local number: https://us02web.zoom.us/u/kehPz09t9i

Read up on the MIP, bring lots of questions and contrarian views and see you there!

attn: @juanjuan; @amyjung; @charlesstlouis ; @LongForWisdom ; @ElProgreso ; @iammeeoh ; @MakerMan ; @prose11 ; @Deimos ;

5 Likes

Join Lev Livnev (@equivrel) and Allan Niemerg (@niemerg). Starting in 53 minutes!

Know Your MIP Summary - Episode #05

February 10th, 2021

Agenda

Video

https://www.youtube.com/watch?v=TmJuRfwSExg

Introduction

Juan Guillén

Agenda and Preamble

00:00

Discussion

Alan Niemerg and Lev Livnev

Discussion and Questions

04:26 — Juan Guillén: One of the questions that came up is, how do you determine the interest rate or the implicit interest rates?

07:24 — Juan Guillén: Stepping back a little bit, potentially Yield would take care of locking the ETH and minting fyDai. Is that how it works? And then the fyDai goes into Maker

08:23 — Juan Guillén: And the fyDai is then locked into another vault within Maker?

08:58 — Juan Guillén: Usually Maker is more about generating fees. Why would Maker want to pay fees in this case?

09:49 — Juan Guillén: Can you walk us through an example with numbers, even if it’s very rough math?

11:08 — Juan Guillén: Can you potentially redeem it within the… I guess not. The difference is that you can only redeem it at the end of the year, it’s kind of like a zero-coupon bond

13:27 — Juan Guillén: Lev, who is the core user that would potentially be interested in using this product or this solution?

15:55 — Juan Guillén: Potentially the rate would be similar to a bank, in which the fixed rate is slightly higher than the variable rate. Is that how you guys thought about it?

17:25 — Kenton Prescott: I have a question on yield curves. You details the examples of short-term interest rates being much higher than long-term interest rates. The TLM module purchases these fyDai and effectively creates a price floor, and therefore ceiling on the borrowing cost for a given series. I’m wondering if the opposite can work as well. If the DSS TLM is not going to be selling mature assets, how do you see it creating a floor on interest rates for long-term loans?

19:00 — Kenton Prescott: In the example, when stability fees are zero percent and we want to encourage a regular sloping yield curve where long-term rates are going to be above some X percent, I was wondering it that also could be done with the current implementation

21:02 — Kenton Prescott: It was just that I realized that the interest rates can be set only one way, so I just thought that I would ask that. And ultimately I think that long-term we should have that ability, so that it gives us more flexibility as we interact with the yield curve eventually

23:02 — Kenton Prescott: I see that one use case for having higher rates long-term in a market where rates are suppressed due to the demand of borrowing is basically for fixed-term lenders… or fixed-rate lenders that are more conservative in general. It wouldn’t benefit borrowers, of course, but lenders for sure

24:08 — Primoz: What’s the current liquidity of fyDai? As I imagine, if you want to borrow fixed-term, you need to find the lender and there needs to be some kind of market for fyDai so people actually buy it, because of the zero-coupon bond. I imagine the biggest benefits for you is that you’re going to get a nice liquid market if this gets implemented. I was just curious about the current state, how liquid it is if someone wants to borrow

25:47 — Primoz: You said fyDai is basically mimicking ETH-A vault, but in some sense these loans that Maker would be buying, they are originated through your protocol. So, it does have the risk profile of your protocol, although it’s mimicking ETH-A. Because we would be buying a pool of loans, right? What’s your debt ceiling? What kind of auction system do you use? This is all relevant because, even if you set an interest rate higher long-term, there’s also this risk aspect. And it’s not Maker’s risk in this sense; it’s Yield’s Protocol risk that we need to assess

28:21 — Primoz: If it comes to losses, do you have any buffer to cover them?

29:46 — Kenton Prescott: I’ve been involved with the development of liquidation 2.0 in Maker, and we chose a standard Dutch auction, where the price starts high and then it’s dropped. I’m not an auction expert, so I’m wondering if your team had a rationale for choosing a reverse Dutch auction over a Dutch auction… It’s the same type of mechanism but it’s done with collateral going up rather than price going down?

31:29 — Kenton Prescott: Relative to the OSM price or the price oracle at which the auction starts, where does the price of the collateral end at the top of the hour?

33:34 — Kenton Prescott: It makes sense why the price decreasing function is held within an hour and the rate of t increases… If you start at half and then go to probably the full liquidation price, isn’t that like a floor of 33% or something? If ETH falls less than 33% within the hour, then it would be profitable to purchase it. This is an extreme, almost black swan-like market condition, but in the event that ETH drops over 33% in the hour, is that the failure mode?

37:22 — Kenton Prescott: I was looking at the smart contracts earlier and it looks like the maturing gem abstract is pretty general and could possibly be adapted to other fixed-term lending facilities. Yield is one of them, Notional is another, and I think there’s another protocol called Mainframe. How do you think Maker Governance should assess these different zero-coupon lending facilities as it considers different maturing assets to purchase?

40:57 — Juan Guillén: I have a question regarding the maturity. Are you regarding the time or the horizon… Is it around one year always? What’s the plan behind that?

42:31 — Sébastien Derivaux: If we look at Notional, the rates for July are 6%, 7%. That’s the kind of things you can lock in, which is higher than the ETH-A vault, it’s more fees from us. The interesting part is that it will decrease exposure to USDC because the current PSN is currently buying USDC and we might want to buy something else that is not related to USDC. FyDai is related mainly Maker and another protocol which is decentralized because the smart contract is immutable […] between these two. The only difference is that, if there is a drop in the demand of Dai, we can’t sell the fyDai, at least in this current implementation

44:52 — Juan Guillén: Primoz asked on the chat “Are you also planning on offering non-ETH based fyDai? How would you call it?”

45:18 — Frank Cruz: Focusing on yield protocol, do you see a future where maybe your protocol is also going to focus on some of the new players, maybe like Compound Cash or maybe even USDC, and there will be an fyCash, fyUSDC…?

46:34 — Frank Cruz: Seeing something like Linen, which is an app for the everyday Jane and Joe, to have access to a fixed rate via fyDai… I think it would be such a win for them. To allow someone like the average Joe just to get a six-month zero-coupon…

47:39 — Free discussion with Teddy Woodward from Notional

51:47 — Kenton Prescott: I was trying to find information on the yield series, such as volume and tdl. I was wondering if you have an analytics dashboard that’s currently public

Closing Comment

Juan Guillén

Outro

52:19

Credits

  • @blimpa produced this summary.
  • Everyone who spoke and presented on the call, listed in the headers.
2 Likes