It might be OK to use temporary solutions that will decrease decentralization a bit, but in our case we have no clue about the permanent solution to the peg problem, so that “temporary” could go for years.
There is a realistic solution to the long run problem of imbalance, which is to stick to the MCD plan of moving towards scalable onboarding of diversified real world assets as collateral.
In particular lines of credit to loan originators, for example trade finance revolvers could easily provide much more supply of Dai than there’s currently demand for, even with all of the COMP farming. Trade finance was a 70 billion USD market in 2019, thought of course it would take some time for Maker to be able to capture a part of it.
It can’t be predicted exactly when this will become possible to do at scale, but we already have some MIP6 proposals that actually are realistic to implement, such as the centrifuge assets.
And then even when Maker has the ability to onboard real world assets at scale, the next bottleneck will be capturing market share. So it will be a slow and steady process, but most likely it will also be exponential once the ball actually starts rolling.
That’s where PSMs and other short term measures that can keep the peg afloat (such as negative stability fees) are incredibly useful and the timing is right for them, since they can be the bridge between the short term and the long term, and then be unwound naturally as the real world asset collateral onboarding picks up steam .
Why is this obvious? Why are negative interest rates so harmful, if they approximate the market’s state of equilibrium between supply and demand? There is an implication that negative rates are harmful to holders of DAI, which is true, but the converse is that they make DAI borrowing even more attractive (potentially some are even paid to borrow), helping adoption on the supply side, which is precisely what we need to prioritise. Savers, hoarders, and those who are speculatively long DAI will be discouraged from holding it, which is the same outcome that we sought to achieve when we lowered the DSR all the way down to zero. Why stop there?
It’s hard to actually argue about this in theory, because from a hyper rational, homo economicus perspective it’s obviously the right thing to just impose negative rates. One factor that I think is very important and somewhat objective is that vault users are more sophisticated than Dai users, so it is a lot easier to scale the supply side and impact the supply side through rates once you have distribution channels. So to the point about real world assets, once you actually have that link set up with the real world, it is trivial to onboard any amount of assets as long as the rates are right - in fact collateral will likely flow into the protocol until the rates are naturally driven up to the point where they are no longer competitive.
The same is not true on the demand side, as rates aren’t nearly as important as trust, liquidity and familiarity when it comes to what is used as money. So while right now in the short run, focusing on the supply side is what’s most critical, but in the longer term it might very well be Dai demand that becomes the bottleneck for growth of the protocol. And organically network effect and entrenchment is everything when it comes to building Dai demand, since the foundation of it comes from regular people using it as money.
The problem is that for regular people, and businesses that target regular people, negative rates or changing the peg doesn’t just mean losing a bit of money instead of gaining a bit of money, it means fundamentally changing what Dai is, to no longer being something that can be compared to USD cash (to better understand this point, consider that many of these users were the ones not even getting the DSR back when rates were at 8%).
Rather than continue to argue the theory of this I think the right step forward for those who want to understand what the Dai users in e.g. Argentina actually think, is to do market research and gather data directly from them. I’m not the right person to relay this information, all I can do is share the anecdotal evidence I have from the founders of businesses that try to offer Dai services to regular people.
Considering that the mission of Maker is financial inclusion I think it would be very valueable if the governance community had a deeper understanding of what that entails and a deeper familiarity with the users of the protocol that governance is supposed to serve.
One last point I want to make is that I do think in the long run the protocol and community should be ready and able to depeg from the US Dollar in case it loses its status as the global reserve currency. But doing something like that is a major decision that ideally should have years of preparation and a much more entrenched economy than Dai currently has.