Maker Stability Module, inspired by Aave and Synthetix

Even with governance rewards potentially being activated soon, there will still be too few ways to earn yield by holding maker (either governance, or a usually sub-1% yield on Aave) - hence the MKR token price and marketcap will likely still will not catch up to more dynamic defi protocols.

What I propose is to add an another option independent of makerdao governance rewards - minting DAI with MKR in the Maker Stability Module.

Wait, I know what you’re thinking - “But MKR the token is the backstop to black swan events on the MakerDAO platform, let’s not entangle it with leverage.”

Firstly, using that philosophy as an excuse to prevent a tokenomics overhaul has not served the token price and thus overall community sentiment positively, so maybe it’s time for change.

Secondly, this signal request will borrow ideas from Synthetix (as well as Aave) that has locked up the vast majority of SNX supply and increased its market cap to more than 3x MKR’s, despite total sUSD being less than 1/13 of total Dai.

  1. Deposit MKR into the stability module.
  2. SM mints Dai worth 1/5 of the USD value of MKR (similar to the SNX staking 500% overcollateralization), over time governance can change this value.
  3. Stipulate (inspired by aave stability module) that black swan events like March 2020 sell MKR staked in the SM above the printed DAI value first to recapitalize MakerDAO (before then printing new tokens), instead of the flawed stability buffer where makerdao will likely incur massive opportunity cost in 2021 by holding $4MM USD worth of inflationary fiat-based DAI in a crypto bull market. If the proportion of staked MKR is anywhere near the proportion of staked SNX, this along with the token price pump of tokenomics overhaul will be more than enough to hedge some sort of failure a la March 2020, or a potential USDT insolvency crisis.
  4. In exchange, those that deposit MKR in this pool get a portion of protocol fees, perhaps similar to governance voting rewards. (hopefully get rid of burn, split it half and half). And for that extra risk, MSM get any yield they can get from Dai on a 3rd party platform on top of rewards from maker protocol fees. Could also consider giving extra governance voting weight for those taking the extra risk.
  5. As an added bonus, this provides resistance against diluting MKR holders that choose to vote in governance without leverage for rewards or not stake at all.
  6. Creates another potential 100MM Dai (even more Dai if MKR pumps), that can be released into the wild for degen defi activity.

I have also attached an excellent podcast episode of Uncommon Core, which goes through the pros and cons of MakerDAO’s and Synthetix’s token models starting at timestamp 54:50: https://anchor.fm/uncommoncore/episodes/17-Defi-Top-20-with-Arthur0x--Su-Zhu-and-Hasu-eofj2n

Please take a listen, as the host and guests bring up excellent points comparing and contrasting the two tokenomics models. And they’re right, maker’s tokenomics is stagnant and the protocol needs some radical change to climb back uphill.

So in conclusion, what this request is proposing is a three pronged token utility overhaul for MKR.

  1. Third party interest bearing MKR like aaveMKR (low risk, no involvement needed, lowest yield, already possible)
  2. Governance rewards for actively participating, or delegating to an active participant in governance voting. (low risk, some involvement needed, mid-yield, already discussed and potentially heading to exec vote: Introducing DssGovRewards)
  3. Stake in the Maker Stability Module (risky with potential of liquidation, much involvement needed, but gets equivalent of governance rewards + 1/5 USD value of their staked MKR in dai that can be used for yield elsewhere, high yield) Can potentially give 2x the voting power per mkr, for taking all this risk.
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Appreciate the effort that went into this post, but it isn’t a signal request, nor is this something that should be voted on using the signal request process.

The Practical Guide goes over the guidelines for signal requests.

For an overview of the standard governance processes used within Maker, please check out this post.

There are a couple of changes proposed here. I imagine this would work best as a MIP or a Declaration of Intent.

A few months ago I was thinking hard about solutions such as these, to increase MKR value and governance and voting behaviour.

But after the great progresses of the last few months, on all fronts, I now think that:

  1. I think the governance in the forum has been stimulated enough in the recent months with SourceCred and such, and it’s growing in a very healthy and relatively-quick way.
  2. MKR value comes from the burning mechanism. It doesn’t matter too much if today the market does not recognise that we are currently burning 6% of MKR/year and that DAI supply is quickly increasing. It will, eventually, if we continue in the right direction.
  3. In my opinion the only problem left open is to incentivise onchain voting, somehow.

Since your proposal does not address (3), it doesn’t find me very intrigued.

The value of MKR will increase over time without any farming gymnic.

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The value of MKR will increase over time without any farming gymnic.

That is what I addressed in my original post, as well as the critiques from the podcast I posted. MKR has underperformed even ETH in the 2 year and 1 year timeframes despite the Dai supply and fees increasing by more than 10x-fold. The USD price of MKR stayed constant through defi summer where Aave and SNX both easily gained 100x against the dollar. I think we can say that assertion is flawed. Like I said, maybe time for change.

Here is a link critiquing the buyback burn model in more detail than I ever could. https://www.placeholder.vc/blog/2020/9/17/stop-burning-tokens-buyback-and-make-instead

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The problem with the MKR coin is that its “parent” company - MakerDAO does not generate almost any profit despite $3.8B in value locked. Even if it earns something - that money could not be spent because it must be kept as a reserve for potential losses or for fixing the peg. Sure, we burn MKR, but it is a negligible amount (see MKR price so far for proof)

I think we first need to find a model which will show that MakerDAO can earn money and then talk about the rewards. If noone is enthusiastic about the reward or sells it immediately for ETH/USD then what’s the point.

There is, of course, always the possibility for a MKR takeover which will raise the MKR price but I don’t think that speculation is appealing to many users.

MakerDAO does not generate almost any profit despite $3.8B in value locked.

Not sure how you’re getting to that number. At the current rate $22 million in MKR is being burnt a year from protocol fees, corresponding to nearly 30000 MKR.

See makerburn.com for details.

We have a broken peg (most of the time) and we have centralized stablecoins as collateral that we cannot sell for $1. We can spend the money now but we will need that money tomorrow for keeping the system afloat.

I don’t think changing the tokenomics is necessary for MKR to appreciate significantly. DAI outstanding has grown 18x since the beginning of last year and the MKR burn will continue to accelerate. If the DAI momentum continues and the price stays flat, more MKR will be burned and more value will accrue to long term holders. If at the end of 2021 there were $10 Billion DAI outstanding ($169M in stability fees at current blended rates) and MKR was at $700/token, ~24% of the supply would be burned in a year, assuming no change in price. With that much additional buying pressure, price will increase significantly. If implementing RWA is successful, sky is the limit…

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Perhaps in USD terms, but that does not preclude the possibility that MKR continues to underperform BTC, ETH and other Defi tokens significantly, as it has over the past years with the current tokenomics.

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Sure, it’s possible that MKR underperforms other cryptos. I think the upside and risk/reward are tremendous and much more favorable than alternatives. As long as we focus and prioritize the long term health and economics of the platform the price will inevitably follow. I will happily continue accumulating until the market wakes up :slight_smile:

I like the idea of using MKR as a backstop and at the same time being a LP accruing fee income. I think it is a good way of aligning everyone’s interests with the long-term vision of Maker DAO.

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I really hope the community will be able to have an open mind towards this proposal. Alongside the yield farming proposal, this is a key moment where this community has a chance to learn, adapt and ultimately out-innovate the competition when it comes to their growth hacking strategies.

Two final features I would add is that there could also be 1) a voting multiplier, as well as 2) a long lockup period for people who deposit into the stability module. This way it will also help give active community members who have smaller MKR holdings more power to change things, beyond just arguing on the forum, while free riding whales won’t as easily be able to just do nothing most of the time, and then jump in to overturn or push through proposals they have special interests in.

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On second thought, I also think that the ability to mint Dai, SNX style, isn’t gonna work, because in a major crash that Dai will become totally unbacked as the MKR is sold off, so this will create a lot of extra risk in the system that would then have to be compensated for by having a higher surplus buffer and keep more reserves, which then reduces the yields for MKR locked in the stability module. I think it will be more effective and a more clean growth strategy to just focus on providing high yields for MKR in stability module

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I think this is a valuable point that @bit is making here–he might not always say the most rainbows, roses, and butterflies comments – but some of his comments have good intentions–shrewd–hence, we should be collecting a lot more fees for being the backbone of DeFI. Especially in a Mkt where folks are profiting using Maker’s resources. Either that or find a way to become more profitable.

Also, when product-market fit? When scaling to the masses? It’s 2021 folks, not 2017.

I think that risk can be counteracted by having a higher overcollateralization ratio. It could be 800% or 1000% (1/10 staked mkr value), as determined by governance. Nothing is set in stone, I’m just throwing ideas around that have proven to be successes in the market.

The point I made was that at $33 million in profit a year, makerdao is one of the most profitable defi protocols.

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We should always focus on more sustainable growth, yes, but that doesn’t mean we should let crappier projects with worse fundamentals use flashy and extremely effective gamification of their tokenomics to steal market share. Market share and marketing is by itself a hugely valuable fundamental asset!

Maker is still ahead even while neglecting tokenomics, but rather than resting on the laurels, isn’t it better to get even more ahead by using all the tools available to us?

Taking the dogmatic high road on tokenomics is like being a politician with the greatest policies ever that refuses to campaign and appeal to the masses, and then as a result the crappy populist stays in power.

Btw want to make sure I make it clear that I believe this community is amazing and kicks ass, and people like @ElProgreso are absolute rock stars. The comment above wasn’t directed at you or anyone else of the awesome maker governance people. I just think that when it comes to tokenomics and learning from other projects we’re stuck in a bit of an echo chamber because there are so many dumb things out there, and that makes it easy to discount all of the innovation as the same dumb irrational bs - but tokenomics, marketing and gamefication really is a big deal. It’s real, it’s tangible, and it should be taken seriously or we are fighting at a disadvantage.

Don’t forget that this entire industry was created purely from the tokenomics of bitcoin, with no other notable feature or technology to show beyond the 21 million meme.

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I think the general idea of making MKR more profitable while allowing active participation being an active voter/LP/backstop/minter etc. is better than just throwing our hands up and going with the status quo. We should be leaning into innovation rather than being left in the dust. The first mover advantage and network effects give Maker DAO a huge advantage, but that can slowly erode over time, Let’s make sure the future is bright through embracing new ideas like B. Protocol’s vault, Peg Stability Module, Seb’s active use of balance sheet investing, strategic reserves like central banks, and bespoke insurance.

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