Liquidity Mining Response Summary

As most will be aware, recently Maker Governance have had to react quickly to the introduction and growing popularity of liquidity mining in the DeFi ecosystem. This post summarizes the emergency and non-emergency responses that we’ve taken so far, and will be kept up to date as the responses continue.

USDC-A Stability Fee and Debt Ceiling Increase

July 2nd - [Signal Request] USDC-A Stability Fee and Debt Ceiling adjustments

Just after the July 2nd Governance And Risk meeting, @cyrus of the Risk Team proposes to adjust the USDC debt ceiling and / or stability fee in response to the proposed change to the COMP distribution as an emergency measure.

The result of the polls is a majority for the increase of the USDC-A debt ceiling to 40 million, and the Risk Premium to 4%.

This change is included in the regularly scheduled executive vote on Friday 3rd July, which passes successfully.

ETH-A Debt Ceiling Increase

July 5th - [Signal Request] ETH-A Stability Fee and Debt Ceiling adjustments

On Sunday July 5th, @cyrus of the Risk Team polls to change the ETH-A debt ceiling and risk premium as a result of the amount of Dai minted from ETH-A increasing to within a few million Dai of the existing debt ceiling.

The result of the polls is a majority for the increase of the ETH-A debt ceiling to 160 million.

This change is included in an emergency executive vote on 6th July which passes successfully.

Peg Stabilization Module (PSM) Proposal

July 4th - Peg Stabilization Modules: A Pre-MIP Discussion

On Saturday, @charlesstlouis describes the idea of Peg Stabilization Modules on behalf of the Maker Foundation. The PSM is a new smart contract that would allow the trading of minted Dai for USDC to directly help to maintain the peg (along with other advantages.)

July 6th - Forum Poll: Deciding the Peg Stabilization Modules Implementation Timeline

On Monday, @charlesstlouis creates a poll to find consensus on the desired implementation speed for the PSM.

The poll and the urgency surrounding it is somewhat controversial. Given the timing and nature of the change @LongForWisdom, one of the Governance Facilitators imposes a higher bar for implementing the PSM as an emergency action.

This bar is not met, and the PSM is instead planned to be discussed over the month of July, and implemented at the end of the month provided it can pass on-chain polls confirming that MKR Holders support its implementation.

July 10th - [Signal Request] Consider refinements to PSM or release ASAP?

@Joshua_Pritikin proposes the above signal to read the feeling among the community around some of the more complex proposals surrounding the PSM. This was in response to a number of proposals from various community members that would be unlikely to be technically feasible for the first release of the PSM.

The poll is ongoing, however at the time of writing it appears that the majority would prefer to see the PSM implemented without major scope changes.

July 14th - PSM Governance Timeline

@LongForWisdom, shares the timeline for voting on the PSM and calls for Maker Governance to work on figuring out what parameter sets should be available for vote on-chain.

July 22nd - A word on the PSM concept and next steps for the Foundation

The Foundation shares the above statement, saying that they will not continue work on the PSM.

July 23rd - PSM Poll fails to pass (barely)

The first on-chain poll on the PSM fails to pass. If the community wishes to pursue this further, the community will need to work through the MIPs process.

Request COMP Rewards exclude DAI

July 7th - [Signal Request] Should MakerDAO signal that it prefers for COMP rewards for DAI suppliers and borrowers to be disabled?

On Tuesday, @equivrel formally begins a signal request around a suggestion that had been discussed over the weekend. Namely that Dai be exlcuded from recieving COMP rewards on the Compound platform. Naturally this is not within the power of Maker Governance to change, but members of Compound Governance indicated that such an action may be possible, if it was desired by Maker.

This signal request returns consensus on a negative outcome. Maker Governance will not signal to COMP that it wishes for COMP rewards to be disabled for Dai markets.

Raise the ETH-A Debt Ceilings

July 16th - [Signal Request] Should we raise the ETH debt ceiling?

On Sunday July 16th, @Cyrus recommends further increases in the ETH-A debt ceiling in response to the uncertainty around the Dai peg.

The poll ends successfully to increase the ETH-A ceiling to 180 Million.

July 17th - The increase to the ETH-A debt ceiling is included in Friday’s executive, which passes.

Raise the ETH-A and USDC-A Debt Ceilings

July 19th - [Signal Request] Increases in the ETH and USDC-A debt ceilings

On Sunday July 19th, @Cyrus recommends further increases in the ETH-A and USDC-A debt ceilings in response to the start of YFI farming.

The poll ends successfully with a majority for:
ETH-A Debt Ceiling = 220 Million
USDC-A Debt Ceiling = 80 Million

These changes were included in an emergency executive on the 20th, and passed shortly afterward.

Reduce the USDC-A Liquidation Ratio and Risk Premium

July 22nd - Signal Request: Lower the USDC-A Liquidation Ratio and Risk Premium

On July 22nd, @hexonaut proposes lowering the Liquidation Ratio and Risk Premium on USDC-A after it is discussed heavily in this weeks Governance and Risk meeting.

July 23rd - [Signal Request] Should Emergency Action Be Taken Due To Elevated Peg

On July 23rd, @Jtathmann proposes expediting the desired changes in response to the pressure on the peg arising from the YFI liquidity mining pools.

On July 24th, and as a result of these polls @LongForWisdom adds the proposal to change the liquidation ratio on USDC-A to 110% to the weekly executive vote. This action takes place before the polls officially end, with the justification that it becomes awkward to take action early next week due to the monthly MIPs executive.

The weekly executive vote passes, and the USDC-A liquidation ratio is modified to 110%.

Raise the ETH-A Debt Ceiling

July 27th - MIPs Executive - 27/07/20

On July 27th, the MIPs monthly governance cycle executive is due. Due to the increased demand for the ETH-A package, and on the recommendations of @Risk, @LongForWisdom makes the decision to bundle the ETH-A increase into the monthly MIPs executive. The reasons for which are described in the above thread.

Unscheduled Call and Debt Ceiling Raises

July 29th - Emergency Peg Management Governance and Risk Meeting - Wednesday, July 29 6:00 PM UTC

On July 29th, @LongForWisdom organises an unscheduled emergency peg management meeting after having a conversation with @cyrus, @rune and other members of the Maker Foundation. This meeting is meant to communicate and discuss stronger measures to control the peg with the community, specifically in relation to an emergency executive vote.

The emergency executive goes live later that night. In addition, @Cyrus posts the following thread: [Discussion] Executive Vote to Raise ETH-A, USDC-A, USDC-B, W-BTC, BAT debt ceilings so that discussion can continue.

The emergency executive passes and the following changes to the Maker Protocol take place:

  • ETH-A debt ceiling to be increased from 260 to 340 million.
  • USDC-A debt ceiling to be increased from 80 to 140 million.
  • USDC-B debt ceiling to be increased from 10 to 30 million.
  • W-BTC debt ceiling to be increased from 20 to 40 million.
  • BAT-A debt ceiling to be increased from 3 to 5 million.

Feel free to discuss the overall issue as responses to this thread. In addition, I’d love to have feedback over whether this sort of summary is useful in order for people to keep track of events. Thanks!


Thank you! I find this very helpful since we’ve had a few discussions on the same topic on different threads. I’m looking forward to the PSM being discussed on the next governance call so we can hash out a pros and cons list to help inform MKR holders :smiley:


This kind of summary is very helpful, for this and other important topics that come up in the future.

Is this a good place to discuss additional ideas for Liquidity mining response? I know there’s been some talk of negative real rates and also raising the Wbtc debt ceiling. I’m sure there are other ideas floating around that haven’t been discussed fully.

Also, would there be any way to speed up the inclusion of new collateral types? I don’t know what domain team’s schedules are like, or if there’s a way for us as a community to help speed things along in that regard. It seems like most of the greenlit collateral types are due in about 2 weeks. Even if we can’t do anything about the current collateral in the pipeline, I think it’s worth discussing ways to compress the process.

I’ve heard rumors of forming community-sourced domain teams, as a way of expanding our bandwidth here. It seems a serious bottleneck we have right now is in collateral onboarding, and I think most of us agree that’s one of the best things we can do to help the peg.


Sure, seems sensible.

Is suspect there isn’t much to be done in the short term. That said, maybe @cyrus, @NikKunkel or @Mariano_Conti can comment.

I was thinking that we need to do two things.

  1. Define what is the effect of compound mining on Maker and DAI. My personal opinion is that this comp mining is draining DAI liquidity below 1.015. It appears unwilling to pay 4% for additional liquidity. The real effect is an upwards driver on the PEG which the community is having a hard time with.

  2. Once we settle on the effect(s) then lets go over the real options on solutions many of which are nicely listed above.

I was starting some work on this but have not completed my thoughts.

What we have from above.

  1. Raise DC’s USDC-A and ETH-A (done)
  2. We raised USDC-A SF. (done)
  3. PSM proposal (being discussed)
  4. Request compound governance exclude DAI from comp rewards (being discussed)

What we have not discussed. Or are in beginnings of discussion

  1. Maker governance minting DAI and purchasing assets with it - directly injecting DAI into markets by buying assets
  2. Possibly increasing wBTC DC
  3. Lowering fees on USDC and wBTC to elicit and measure increased use of facility or not.
  4. onboarding assets that might generate more use that may be sizable.
  5. negative rates.
  6. use of MKR in governance (i.e. new DSChief rewrite) allowing MKR deposited in the governance contract to mint DAI based on some reasonable assumptions i.e. to allow MKR in governace to be used like a vault. This has significant implications but we depend on MKR to deal with shortfalls in the system why not use part of the marketcap to allow for DAI PEG operations by MKR holders but only through MKR deposited in governance.
  7. Anything I have NOT thought of in this list?

Additionally I have not seen any discussion regarding how much DAI might be required to drop the PEG to $1. Lev and I think this number might be quite large (at least 100M DAI and possibly up to 500M DAI). While this whole comp thing gives a stress test on the system regarding PEG managability generally I think looking at the effects and driving a general response that we can implement and use reasonably quickly is important. Use the tools we have, increase liquidity, add new ones with some testing methodology and work on others that may require longer term discussion and work.

So we really need to fall back on a measurement system and means of testing what we have done regarding effects (positive or negative) on the goal (PEG management).

I think raising the DC’s is the right move. Increasing the USDC-A SF as a RP has not added more DAI. 3 and 4 above are still being discussed and (4) is not a general solution as there is no reason compound has to DO anything here at Maker request. The rest are all ideas still needing vetting and discussion.


I am very interested in this suggestion, maybe we should redesign MKR’s token economics.


Please, could you further elaborate where Lev and you came up with the 100M-500M DAI figure?

Well lets allow Lev to speak for self. I think most people were wondering if 50M or roughly 1/3 of the oustanding would make a dent in current PEG. How much becomes a question how much would DAI have to grow to accomodate what is driving PEG off curently to maintain PEG of 1 is wholly open.

My own analysis
So if you look a this from a marketcap DAI perspective it is either 1/3 or less cap, (or over 3x more or less of current cap). so 50-500M. I loosened this personally to 100-500M because most minds I have spoken with on the issue say it ‘could’ be that large, also that 50M might be enough - at least 50M would be a good start as an ‘experiment’. So the above is ‘how’ I arrived at the numbers - independant of Lev.

But generally discussed.

The idea of how much DAI there has to be to keep PEG at 1 when we get drivers like 29%yr/yr return on 1B cap (may now be 10-15%). Let put what we are dealing with in perspective. Literally what compound was offering or IS is a 1yr payout 2x what the total DAI outstanding is (about 200-300M USD) and then making it so that current the comp farming game is slanted towards DAI. How much DAI do we have to throw to sop up this problem. 100-500M - yeah maybe…

Leave Dai alone and keep it overcollateralized as it is today. Instead address the Dai supply side directly by paying people to generate Dai with MKR rewards.

Compound has a 3% borrow Dai interest rate because they are paying people to borrow. If Maker does this we can get the peg below $1 without the nastiness of destroying the value proposition of Dai (that it is worth $1) and without negative interest rates.

Plus MKR holders will make a boatload of money as people get excited about Maker again and the protocol attracts lots of deposits!

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Paying vault owners MKR rewards to generate Dai is unsustainable. MakerDao needs to come up with ways to increase the Dai supply and generate value in the process. Please read this post and give your input.

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What is unsustainable is all the Vault collateral leaving for Compound and Aave loans.

@IslandHunting Vault collateral and Dai generated has been rising not falling, so I do not believe this to be the case. See here

People can move loans from Compound to Maker and back again easily. There is no “trapped”.

I understand your point and rationale behind, however there is no empirical data to support it. Perhaps there isn’t because your are assuming vault owners don’t take into account the risk of putting all of the eggs in the same basket, something I would not do. In respect to MKR being issued I don’t agree, it kills the token economics and there is no way back from it afterwards, the fact that other platforms are doing it does not mean we should, that’s why there are different platforms with different risk profiles. We should be focusing on the peg and integrating new collaterals.


Trapped is when interest rates skyrocket on your loan over there and you end up liquidated. I smell a fish with COMP. Someone is getting taken advantage of it is pretty obvious. It is either the borrowers or it is COMP as a DAO but in either case it will not last and one of the two (or both) is going to end up hurt at the end of this.

I don’t see any way to avoid the migration of Vault collateral to Compound, Aave and new competitors without paying Vault owners to stay.

I don’t see any difference between giving away MKR tokens to A2Z at a steep discount, and giving them to Vault users to restore the peg and grow the size of the Dai ecosystem.

I also think if Maker fails to do this, someone else will generate a competing stablecoin, pay for deposits, and suck away liquidity from Maker.

“Trapped is when interest rates skyrocket on your loan over there and you end up liquidated.”

Liquidation was an issue with BAT farming, not really an issue now.

@IslandHunting please stop shilling the idea of Maker following Compound and Aave in every forum thread. We have discussed this idea before, and almost no one is on board. As @FourthStreet said it is unsustainable.

Implementing this would continuously pull value out of mkr, and the economics of it just don’t make a ton of sense. It’s a weird irrational behavior that is happening right now on a number of defi platforms to gain “competitive advantage”, but it is likely to ultimately destroy them.

At the very least give time to allow other people to respond, rather than bringing up the same idea in every thread on the forum.


“No one is on board”

That’s why I am posting. To give MKR holders a chance to change their mind and alter course here. I want to see Maker succeed and Dai succeed. Dai is an incredibly important technology for the entire world, and no one else offers something as good. I want Maker vaults to be competitive in the marketplace. At this moment, vaults are completely uncompetitive except when used as a Dai source for hypothecation as part of a liquidity farming operation. And that kind of use doesn’t help the peg at all.

I’m putting my money where my mouth is. Moved another 20% of my vault loan to Compound. So 50/50 now between a Maker vault loan and a Compound loan.

I’m getting paid a lot of money for doing this. The more I move over from a Maker vault to a Compound loan, the more money I make every single day.

If you think this isn’t incredibly relevant to Maker governance and the peg crisis, I don’t know what to tell you. I am also a significant market maker for the ETH/DAI peg who does 8 figures annual volume on Maker’s Oasis DEX. So I do know something about this market.

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