MIP20: Target Price Adjustment Module (Vox)

Any DAI is partially backed once the settlement price becomes <$1. As a side note, if for some reason the market persistently puts a premium on DAI such that the internal price is <$1, the market price is $1 and Target Rate is 0, it will be simple to have only (2) (lower settlement value), not (1) (riskier collateral ratios): adjust those CRs upward so that they are effectively calculated against a price of $1. If the market is long-term happy with partially backed DAI this would be an interesting policy to follow.

(For clarity, by (3) I will mean: a governance commitment to try to actually reach its set Target Price in the market and not use it as a purely nominal adjustment knob).

I am confused by your model of (3) being able to bring down DAI price faster / with a higher Target Price. Why would the commitment to keep going after the market price has crossed $1 make that very event happen at a higher Target Price than in the world where the commitment is only to keep un-backing DAI until $1 has been reached?

Supposing that it is easier to to bring the price down with (3), is that worth it? Leaving out (3) means the $1=1DAI meme can be kept alive in market terms. In your model the cost to that seems to be a more unbacked DAI, relative to using (3). How bad is that compared to the good of keeping $1=1DAI?

Thanks for clarifying. I am sure you and a lot of other people know this system way better than I do. I am just looking at this from a monetary policy perspective and what it means to stake holders. I agree there are two factors that play on this. The psychological idea of ‘threatening’ a move, then actually doing it. Both should have some effect.

So the Target Rate is a governance thing so it would be a rather slow change unless we set a target rate pretty high here. This is a pretty slow response tool then and will only make incremental changes. One could say the same of the SF but in terms of making a change that is significant for a vault holder to take the tx cost hit to mint more DAI or not I think is a valid issue with this approach simply not having enough meat to really move the PEG. Even so I like it as a general monetary policy tool. It would be nice to have governance decide a working range and to code this up as something that changes periodically when someone takes out a DAI loan or repays DAI to update the TR based on what the PEG is telling us. This way your Vox idea becomes an actual PEG management mechanism that governance simply would have to monitor if it hits the end of actual working range (say 1.05 and .95 or whatever governance set on it).

Well I think as a DAI holder I would start getting concerned if the target price was < .9 above I only care about as a vault holder borrowing. But I as a DAI holder and vault borrower DAI PEG being off doesn’t really bother me much. I think I get more concerned if the PEG is like .98 than 1.02 but that is just me.

One thing I guess you are still mulling over is a response to whether you think this mechanism has enough teeth to manage something like this comp problem. Each time I am turning a response to PEG management when I think comp is driving this so far off I wonder no matter what tools we come up with. How far is governance going to have to go in terms of either ‘growing the system’ or ‘taking on risk’ to provide the kind of liquidity growth that could still manage the PEG. I really don’t think anyone other than myself and perhaps yourself has even tried to engage the community on this question.

We definitely want to explore monetary policy tools, implications for PEG stability, system risk, and growth but then we really have to come to grips with what comp has thrown at us. Do we even want to use all of these tools to drive the system to attempt to compensate for this massive driver, or do we allow other forces to drive Maker here via PEG, DAI demand etc. I think it is interesting @cmooney pointing out we have a good problem - high DAI demand - which everyone appreciated. Left out of this comment is the possible fact the only reason there is high DAI demand is because of compound and comp farming is most efficient with DAI - and perhaps no other. Without this driver - today we might have had a PEG close to 1 and then we would all feel less pressure to come up with new monetary policy tools and deal with the additional issues of risk, demand growth etc.

So I think this whole comp thing may end up being a blessing in disguise since it has caused the community to identify new tools, and implications to system as well as system participants causing a lot of work to be done on this issue. Where I think the discussion has not really matured on this is an understanding of what, in the future, if we experience more of these crazy secondary drivers messing with DAI demand what is governance guidance on how to proceed to deal with these things.

Do we consider devaluing DAI off the 1:1 ES guarantee. Do we have one or more PSMs (I am working on a post regarding my general concept of an ideal PSM system operation just to have as a example to work off of while constructing the first and later versions of the PSM tool should governance decide to push forward on this tool as well as others). Do we have a secondary reserve fund that governance uses to buy and sell assets to inject or remove DAI liquidity directly from markets. Do we allow MKR in governance to have access to MKR vaults with very conservative operating values (DC, LR, SF) to allow MKR in governance to be used not just to vote, but also to help manage monetary policy directly? etc.

I really want to hear from others on whether we would have to drive this system to extreme points to even have any hope of managing the PEG in the face of this comp problem. As a note. I watch carefully the uniswap comp/ETH paid and this ratio has consistently been coming down at something like a few percent a day. My rough estimate is that if this decay continues at this rate comp mining should ease off in about 2 months. This is mostly due to the fact people are using pretty high cash leverage here to access this COMP and from what I can see the total deposits are growing as well further diluting the return against real cash invested. WIth BAT and ZRX there was at least pricing risk by holding any of those coins long or short depending on the position. With DAI the pricing risk is significantly less.

Anyway. Really appreciate you putting MIP20 forward in detail Lev and I would support using this as an additional monetary policy tool generally. I think governance may need stronger tools that can bring DAI liquidity to bear directly for PEG management but we need to get a real direction from governance and the entire community as to how far we should go with these tools, and/or how far off of 1 the PEG can be for how long before it affects various players adversly in the DAI ecosystem.

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I support the proposal. The current tools do not work.

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@rune, @cyrus, @g_dip, @monet-supply

I would greatly appreciate if you could weigh in on this. I feel like this is the proper solution to the demand imbalance that is causing the peg to drift. MakerDao could implement this to solve the root problem and still have a PSM for the added liquidity it can provide. This is the first time in several months I have felt at peace over the peg drifting. This solution is comforting because it would actually work (as far as I understand). Thank you in advance for your time to weigh in on this everyone!

Sure, it breaks the 1 Dai is $1.00 promise (temporarily), but not in the markets which is what the average Dai holder is likely most concerned with. I feel like most people would be OK with this solution because it will keep Dai stable in the long term and as a result in the short term as well as the forward looking expectations play out.

I feel like for things to truly be comfortable in the ecosystem there needs to be a massive short term liquidity of Dai available for emergency type situations when collateral is falling fast in price and Dai rising do to deleveraging and panic. After the “Target Price Adjustment Module” and also a short term liquidity solution has been put in place I feel like MakerDao’s Dai will be in a really good place.

@BrianMcMakerDAO Thanks for the explanation of the MIP on the community call!

One follow up question… If the Vox functionally adjusts the collateral ratio to allow people to mint more dai, do you think people who choose “safe” ratios (eg 200-300%) would be enticed enough to mint more dai and cause a meaningful change to the PEG?


That depends on each individual vault owner and how they perceive and interact with the system. I will say that it shouldn’t too much matter because anyone can open up a vault and create Dai, so it doesn’t have to be the safe holders it can be instead a new owner who is looking to take advantage of the profit opportunity.

I think it’s great to consider this as a thought experiment to illustrate the decisive action that is needed to deal with the current imbalance of the protocol. But obviously actually implementing this would be suicide. I thought this would be apparent and I’m a bit surprised nobody seems to have even mentioned the real world adoption consequences of doing something like this.

Effectively all credibility of the project would be lost - especially with actual users, but also more broadly with anyone who has ever heard about the project.

Effectively all existing real world network effects and adoption would be reversed.

Maker would have pivoted into becoming a niche accessory that services COMP farmers.

I’m not saying that doing nothing and just keeping the peg broken wouldn’t lead to a slow death, because it absolutely would. But negative rates means choosing immediate death.

The goal of Maker is to create an unbiased world currency that can level the economic playing field and create financial inclusion for people all over the world. Serving real people and providing real value as a new currency. Maybe people here aren’t aware but the project already has some levels of success with this mission, specifically in South America - this tweet by Mariano from the foundation is a good example: https://twitter.com/Mariandipietra/status/1282827104732827648

These are real, regular people from the real world that are using Dai, through various integration partners and distribution channels that originally chose to trust the project and Maker governance with their money and value rails. If that trust is betrayed, it would mean irreversibly destroying virtually all of the organic adoption that has been achieved so far. (Again, it IS already slowly going in that direction with the broken peg, so something has to be done)

It’s not all whale COMP farmers or algorithmic bots. In fact the bots and the whales wouldn’t be using Dai at all if it wasn’t for the organic adoption.

Now lets explore the COMP farming pivot for a second. It is very likely that it wouldn’t be long run sustainable, because the Maker protocol needs to generate significant amount of fees in order to fund its own technical security and continued growth. If it fails to grow big enough to be able to fund this, it cannot safely continue to operate, and will eventually have to shut down.


The alternative you are proposing is to onboard hundreds of millions of dollars worth of USDC as collateral? What are the other options you are seeing? Leaving the peg broken is not a good one I think we can agree on that.

Could this USDC at least be loaned out for something (likely Dai) by the system? Rates are well above 0% right now for USDC loans.

How is the system supposed to deal with a demand imbalance long term without a counterbalance in place?


Something that had crossed my mind with this idea was that in the extreme case should the par value of Dai ever get lower than $.67 in the system (yes I know it is absurd as it would mean Dai still over $1.00 in the markets with insane levels of profit potential for new vault owners available). Follow the thought nonetheless please as it leads somewhere.

Liquidation is now not a possibility on vaults to repurchase Dai because the system would always be unable to repurchase as much Dai as was loaned. For example: $1,500 worth of ETH is 1,000 Dai. At .67 it can be nearly 1,500 Dai. If Dai is still over $1.00 at the time of liquidation the system can no longer repurchase the Dai. Would the system in such an extreme case be the lender of last resort unto itself?

I have been arguing that it needs to be. In extreme cases like the one given above the system could easily mint Dai. Buy collateral with it whether it is a stable coin or whatever collateral makes the most sense and then use that to back the Dai. If the alternative is to buy Dai above “par” value from the market it seems to make more sense to me. The system should be designed to not have to ever buy Dai over par value as doing so is in direct violation with the effort to decrease Dai demand!

I have yet to come across a way that the system can balance vault demand with Dai demand in the market indefinitely without being holder of the collateral itself in the most extreme of cases. Eventually it always ends up in all thought experiments that if Dai is being devalued to lower demand that the collateral not be sold and instead simply assumed by the system until stability is reached and Dai trades at or below $1.00 again. Why buy something MakerDao can issue cheaper than buy for a price higher than it “should” be worth. MakerDao is becoming part of the problem by doing such things.

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I agree with @run.
DAI holders will not likenegative tax rate, their only choice is to give up owning DAI. This is suicide.
We should not implement a negative tax rate method. We should study how to reasonably print some unsupported DAI.

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If they give up holding Dai demand falls for Dai in the market and so do prices. At that point the negative interest rates are no longer required. Demand has to balance for a stable system to be stable…

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The promise MakerDao made was for the coin to move towards $1.00 in the market. That is the one promise that should above all else be kept.

As far as all this negative interest rate, devaluation of Dai, inflating or making un-backed Dai. backing Dai with centralized stable coins that can be blacklisted or banned by government drama goes:

I say balance the system in a sustainable fashion such that it leads to the market price converging at $1.00 while also being fully permission-less and decentralized. That is all that can be reasonably asked for, and that is something MakerDao can do.

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Humor me here a bit. What is the issue with doing something like this. That the backing value of DAI is no longer 1DAI = 1USD of collateral?

If this is the real issue regarding ‘credibility’ then basically pretty much every kind of PEG management tool we are talking about gets basically tossed in the trash because the ONLY allowed way to manage DAI liquidity is by increasing backing collateral which in extreme cases here like this comp situation literally may mean the system assuming a huge amount of collateral by itself based on a one time fee.

I just want to be clear here which is why I have now been asking.

What are the system constraints that have to be constantly satisfied because if we can’t give up at all on the backing value to DAI to help manage the PEG on the high side the number of tools we potentially could have available to manage the PEG drops pretty dramatically. I also want to be clear here as @LongForWisdom points out - once the DC on the PSM runs out - that facility is done managing the PEG and the system is stuck both with collateral and new DAI generating no fees no matter what happens with the SF. Literally if we have as system value.

  1. decentralization
  2. PEG
  3. 1:1 value
  4. What did I miss?/Other

One will have to give to satisfy another. You have opted with PSM only here to give up on (1) to keep 2 and 3.

Realize I am not married to anything here. I am really just trying to understand first what various people in the community consider important to maintain, and what they don’t consider important. The above 3 points are key ones everyone brings up and they are not ordered in any order of importance.

I really think we should run both a forum poll as well as an on-chain poll to get a feeling for what people in forums think on the above 3 and any other things I missed as 4,5 etc as determining order of importance on 1-3 above is going to constrain DAI liquidity management tools/options as well as ability to manage 2 - the PEG.


I like the VOX (or a system that adapts to Dai demand in the market by reducing demand and supports further supply) coupled with never re-purchasing Dai over “par” from the market.

It satisfies the following:

  1. decentralization/permission-less
  2. Peg
  3. A price that from the markets’ perspective is always approaching a 1:1 value which is what most market participants actually care about.

A 1:1 true value I personally would love to keep. I just don’t see how it is possible. If demand is greater than supply there is no long term way to fix that without actually addressing the imbalance. I am open to alternatives, but have not heard one that would actually work. As soon as I apply the idea to any kind of mental model it immediately falters. Centralization is probably the least safe of the options as it makes MakerDao vulnerable to a host of problems while also not directly addressing the demand imbalance in a way that scales well.


This is an interesting proposal, but it seems a little extreme at this stage. Especially when we still have other tools available such as the PSM and higher stablecoin debt ceilings.

I don’t really understand the objection to using centralized stablecoins to fix the peg during times of excessive demand. Do the people arguing against USDC backing expect “pure” cryptocurrencies to always be the primary source of collateral?

I think if you take a hard look at how much Dai can be generated via “pure” crypto, this will not scale to meet upcoming demand. We have to deal with messy, real-world assets to grow the system - USDC being the big one available to us right now.

Ideally it would have been nice to have a more diversified basket of stablecoins available to us before having to meet this recent COMP demand, but we are dealt the hand we are dealt and we need to grow or die.

So I think for the question of “do we want to just become a wrapper for centralized stablecoins”? I say in this moment yes. Absolutely. We need to defend the peg at whatever cost and scale to meet demand. All the while maintaining the core promise of an asset that is worth $1 USD.


What debt ceiling are you proposing so it is clear? No ceiling?

I really do not understand your strong aversion to negative rates here. Many countries use negative rates, and their currencies do just fine. Sure, we aren’t a country, and in many ways that is the system we are trying to be an alternative to.

However, our value proposition has to do with accountability and an alternative to fractional reserve banking. I don’t see how negative rates break this value proposition. In fact isn’t this module just a sub piece of the TRFM? I was of the understanding that the TRFM was a reasonably agreed upon long term vision of what dai could be.

It seems like a large number of community members don’t feel very good about the PSM. I for one don’t like it very much not just because of the open questions about holding large amounts of usdc, and how much collateral would actually be needed to compensate for COMP farming, but also because the PSM is a deviation from our other peg stabilizing methods which are more market driven. The PSM is much less of a market driven tool.

Can you elaborate on your views on this a little? You seem to have very strong feelings, but it’s not entirely clear where your opinions are coming from that “Effectively all credibility of the project would be lost”, or “all existing real world network effects and adoption would be reversed”. I really think negative rates would be much more benign than this.

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Not everyone cares as much about the true 1:1 value so long as the market value is always chasing $1 and is on Peg often. If demand were to fall as a result of this decision, the market price for Dai falls, peg is reached, and the “par” value goes back to being a true 1.00 again.

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Are you asking me? If so then whatever total debt ceiling will get us to meet the demand is my answer. We cannot stay primarily backed by ETH forever.

Yes, and your answer as I was guessing is “unlimited”. This is the only answer that actually can make sense because this is what it might take. This is not a balanced market approach, it is essentially just manhandling the peg where MakerDao wants it. The risk as a result could be (it may not have to be right away, but it could be) massive.

“Where do we stop?” - “We never stop!”