MIP13c3-SP10: Declaration of Intent - eurDai

[ultraschuppi]

MIP13c3-SP10: Declaration of Intent - eurDai

Preamble

MIP13c3-SP#: 10
Author(s): Tim Schuppener (@ultraschuppi), Sébastien Derivaux (@SebVentures)
Contributors: n/a
Status: Formal Submission
Date Proposed: 2021-02-27
Date Ratified:
Declaration Statement: Analysis of a EUR-pegged DAI
Declaration to Replace: n/a

Specification

Context and Motivation

• Maker has been focusing on creating a stable coin soft pegged to the USD. Since the launch of MCD more than 20 different collateral types have been onboarded and more than 2B DAI have been minted
• However, it has always been one of the long term goals of Maker to expand not only in terms of collateral types (including real world assets), but also on providing stablecoins pegged to other currencies
• This would not only be helpful for growth outside of USD-using countries, but would certainly also help on onboarding more real world assets as collateral
• The discussion thread on EuroDAI generated a lot of interest.

Declaration Detail

• MakerDao should investigate about and build a subprotocol providing a DAI-like stablecoin pegged to the official currency of the European Union (€)
  The investigation should be contained by the following elements:
• The subprotocol must be controlled and governed by the Maker Protocol
• Debt auctions in the subsystem should not dilute MKR (not flopping MKR) until governance decide otherwise
• Surplus auctions in the subsystem should be beneficiary to MKR holders (flapping MKR if possible)

Operational resources

While limited to exploratory and analysis work, this declaration of intent might trigger some costs (e.g. technical resources). MakerDAO intends to devote up to 50k DAI to this declaration of intent managed by the mandated actors multisig.

Relevant Links

• [Discussion] EuroDAI

[spin]

@ultraschuppi

Debt auctions in the subsystem should not dilute MKR (not flopping MKR) until governance decide otherwise

Why would you want to give upside to MKR (flap) but no risk (flop)? This sounds like a great deal for MKR holders but I don’t understand how this could be done easily?

[Joshua_Pritikin]

@spin

Why would you want to give upside to MKR (flap) but no risk (flop)? This sounds like a great deal for MKR holders but I don’t understand how this could be done easily?

I agree. It seems to me that adding eurDAI (and jpyDAI, gbpDAI, audDAI, etc) is a pretty small change to the system. I understand that we want to start with low debt ceilings at the outset, but otherwise the system should be identical to the usdDAI system. I speculate that any divergence between the systems would create extra work.

[ultraschuppi]

@spin

Why would you want to give upside to MKR (flap) but no risk (flop)? This sounds like a great deal for MKR holders but I don’t understand how this could be done easily?

Not fully thought through, but we could do something like selling zero coupon bonds at ‘flop’ and settle them at ‘flap’. SB would be SB + outstanding bonds - only if this is filled traditional flaps will happen.

imho this would be interesting to investigate in any case - if we eventually will have a bunch of stablecoins it might make sense to isolate risks (to a certain extend, could be configurable by governance how much of those bonds shall be sold at max) before a MKR backstop would kick in.

[Metternich]

There is definitely a good point in this question.

I think Maker holders should have “skin in the game”. That should be for both ways. A decentralized plattform needs to be trusted. How can we be trusted if we don’t take the blame as soon as things turn bad?

I especially have got trust in the system because I know that Maker holders have skin in the game, so they’ll try their best to avoid getting punished by flop auctions.

[SebVentures]

Regarding the flop, it’s based on a simple reality. The SC Core Unit has indicated that it would take too much time to review which I fully understand. We have to do without for the beginning (not giving a timeline here). I’m not against it, but it won’t happen. That seems a hard constraint to me.

The EUR-stablecoin is so underserved that this shouldn’t be an issue.

Obviously, that means more risk for eurDAI holders meaning growth will be a bit harder and the SB will be super important limiting a lot the ability to flap.

@ultraschuppi has also teased an idea of bonds to solve a bit this issue.

[LongForWisdom]

We should be careful how we present any eurDAI that isn’t backed by MKR as well. Maybe brand it as MakerDAO R&D / Experimental or something.

[spin]

I agree with this idea very much. Maybe similarly how SAI was always planned to be replaced by DAI we could say that this is a first iteration of the system and that the goal is to globally settle it once eurDAI becomes less experimental and flap is enabled?

In the long term its governance is only ensured if flap is enabled to ensure there is a downside risk for MKR holders. If this is a transition period/experiment I think a lot of people will be supportive of it and use it to start experimenting with it.

Funnily enough, most people aren’t aware of that but SAI also did not have flap auctions

[ultraschuppi]

@spin

In the long term its governance is only ensured if flap is enabled to ensure there is a downside risk for MKR holders. If this is a transition period/experiment I think a lot of people will be supportive of it and use it to start experimenting with it.

exactly that was the motivation for adding a different backstop to the DoI - this is not aimed as having the same degree of production readiness as the core product. for sure we need to come to that point eventually, but not necessarily in the first step

@spin

Funnily enough, most people aren’t aware of that but SAI also did not have flap auctions

in SAI peth-holders were punished in the event of bad liquidations it worked pretty well nevertheless

[ElProgreso]

Food For Thought:

“As of February 2021, there are currently about 50 different live stablecoins issued by 25 different companies, all of which are listed in Part VII. The total combined supply of these stablecoins is about $38.5 billion. Of the total supply of $38.5 billion, 99.5% is pegged to the U.S. dollar while only 0.3% is pegged to the EUR and another 0.1% to the KRW. One major reason is that the U.S. dollar is the most widely held reserve currency, representing 61% of international foreign currency reserves.” --The Block Crypto

[ElProgreso]

BTW: GMO-Z Trust Company (GMO Trust) is revealing its JPY-pegged stablecoin (GYEN) and USD-pegged stablecoin (ZUSD) this week. And there’s a rumor that PayPal’s stablecoin is to be announced in Q1 in cooperation with Paxos??? It’s about to get competitive in stablecoin land.

[alexis]

Isn’t it the euro supply in the real word higher than the usd one?

@ElProgreso

Of the total supply of $38.5 billion, 99.5% is pegged to the U.S. dollar while only 0.3% is pegged to the EUR

In anyway that is a big gap.

[SebVentures]

@alexis

Isn’t it the euro supply in the real word higher than the usd one?

They are quite the same size ($19T vs 13T€ according to this site depending on the exchange rate) but you also need to count the Eurodollar market ($ outside of the US) which add a lot to USD.

And M2 might or might not be a good metric anyway (the Fed stopped to track it because it’s an endless debate to define it anyway). Would you count the USDC on Maker as adding to the amount of circulating stablecoin? That’s a tough question.

[alexis]

I agree, it is not a good metric, as you said I think the marketcap is about the same.

I just wanted to highlight it as most of dev/users are US based.

[ultraschuppi]

i’d like to push this to Formal Submission please

cc @charlesstlouis @Davidutro

[charlesstlouis]

You got it!

[ultraschuppi]

x-Posting for better visibility: @SebVentures and I are going to do a KYM on eurDai 2021-04-09T13:00:00Z

[AstronautThis]

Just wanted to say this is really awesome and I’m looking forward to seeing eurDAI finally starting to take shape!

[ultraschuppi]

The Declaration of Intent is now in the voting portal, please participate. The poll is running until 2021-04-15T16:00:00Z.