MIP20: Target Price Adjustment Module (Vox)

The negative rates in the worst scenario also mean slow death. We can assume USDT is not fully backed and it is stronger than ever. I don’t trust USDT but I would trust DAI if it was temporarily not fully backed. I would also trust DAI if it turned ETH liquidations off until ETH is i.e. $500 (betting on ETH success).

It seems that there is no easy solution to the peg problem and that solving the peg problem will require taking more risk than MakerDAO is comfortable with.

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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.


We could do negative stability fees without a negative DSR, but it seems like mkr holders are not very keen on subsidizing dai supply in this way.

Thank you though, your post clears up your views somewhat. I still disagree and think we should implement a module that allows us to use negative rates, especially if we can get away with it without depegging from the US dollar on the market side. If we can maintain the peg, dai users should never really have to worry about negative interest rates if they just know that 1 dai=$1.

Going to just run through and make comments, hope some of them are useful. I’ve seen a couple of typos. I’d recommend running this through grammarly or somesuch :slight_smile:

Can you support this statement more clearly in the motivation section? In general I think most people here will understand why, but we should be trying to make the MIPs as self-explanatory as possible.

It bothers me that this is referred to as ‘Target Rate.’ It’s slightly misleading in that the rate itself isn’t a target in any way. It’s the rate at which the target price changes. Wouldn’t ‘Adjustment Rate’ be a better representation of the concept?

Is there a minimum to this too? Is this a upper and lower bound? Or just an upper bound? Seems like just an upper bound from elaboration in the desired properties section.

Why is this important?

What are these test cases testing? Are the tests successful? Do you feel that these tests sufficiently cover the changes?

This sounds like the sort of thing that needs to be done prior to this MIP being formally submitted, no? It could be dangerous to turn this on if those inspections haven’t taken place?

I’d actually suggest that those processes live somewhere else, though I’m not sure where as this point. I think it makes sense to separate governance processes from technical implementations where possible.

Would audits or formal verification take place prior to this MIP being Formally Submitted?


What do you suggest?

To clarify, this proposal does not suggest MKR printing and in general has little to do with MKR. A negative rate is implemented here by adjusting the target price of DAI: i.e. DAI holders pay borrowers, not MKR holders pay borrowers.


Sorry, I ranted in the wrong thread.

The discussions around Dai interest rates are very much influenced by the discussion around fiat central banks and their power to set interest rates for a particular currency. However, the similarities end rather quickly. Maker can set the Dai savings rate, but this is in not the same as the Federal Reserve or European Central Bank setting the interest rate for USD or EUR, respectively.
This is because USD and EUR have little real competition in their home markets, a position Dai does not have. If the EUR rate is negative - so what? There is no alternative to EUR in much of Europe. If the Dai savings rate is negative however, the only thing we would accomplish is to see we hard gained market share evaporate as Dai competes with a whole range of stablecoins in the cryptospace.


After a brief black Thursday induced sabbatical, it took me a week to absorb all of what’s going on in the maker governance space right now. There are so many moving parts these days! It takes some time to let all of this new information cure. It’s clear that farmers are running this show. What wasn’t so clear to me was the best way to combat them. After weighing the pros and cons of the PSMs, TPAM, and minting unbacked DAI I’ve finally accepted that the only solution to the insatiable demand from farmers is a negative rate. We need to take their money. It’s the only thing they care about. This is a huge pivot for the project; we’ve only ever given money to DAI holders. Now we’re going to take some away and kill the 1 DAI = 1 USD meme forever? Absolutely.

The TPAM has more teeth than any other solution I’ve seen put forward. It demonstrates that MKR is the most powerful governance token in the entire defi space. We can, and will, take your money. We’re even willing to kill our meme to do it. Not even the government can take your property without just cause. We can do it with two votes. That is powerful. That’s why the TPAM will work. Implementing the TPAM signals to farmers - sell your DAI now. We’re done with your tomfoolery. We’ll take par as low as we need to. You don’t think the moon boys will go long? Bet. We’re going to take your yield and effectively give it to shitcoiners. Sure, it is entirely theoretical, but I’m certain farmers are going to pay attention to this. It’s simple, beautiful, and powerful. I love it. Thanks for putting this forward, Lev. I would like some clarification one important point @MakerMan made here:

I think what he means by “delay cycle time” is how will governance react some time in the future when DAI trades lower than par. Will we raise the base rate first? Will we go straight to the TPAM, or wait a delay cycle amount of time before adjusting par? I think it is important for governance to commit to a certain amount of time before raising par in this situation. Having a longer delay cycle would reinforce the idea that borrowers are being paid now, but won’t be in the future. This makes it even more lucrative to borrow now, knowing that the pain (high base rates instead of par changes) is coming eventually.

One other thing I’d like to close with: the TPAM is brutal. We’ll be taking from the poor and giving it to the rich. I’m okay with living with this because the alternative is taking money from farmers and giving it to ourselves (burning MKR with unbacked DAI). We’re better than that. This has nothing to do with short term gains for MKR holders, and it never should. What it will reveal is that MKR governance is the dominant force in all of defi. Bring it on, farmers.


I prefer to think of this as rewarding DAI minters.

Implementing any PSM instead of the TPAM is admitting that you prefer communist price fixing over capitalism. We’re a defi central bank. Central bank goes brrrrrr.

Rewarding/punishing vault holder greed is life blood of makerDAO. We (you) givETH and takETH away. I can understand why you see this as taking from the poor and giving to the rich - that’s exactly what it is. Tough position to be in. This is what you wanted, right?

that’s suicide. We can do better than USDT - we don’t brrrrr money and give it to ourselves; we take it from farmers and give it to the moon boys.

number ≠ success

I agree - we’re going to have much better savings yields than either of those shitcoins after we get the peg back. Oh, and our assets are actually backed by something (literal shitcoins), because shitcoins are better than nothing. Hopefully meaningful amounts of less volatile collateral soon

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Hahaha, @lix I like your spunk

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If we implemented this, right off the bat DAI would be ejected from all of the curve pools which represents the vast majority of DAI liquidity. DAI demand would go down, but so would supply because it would be tougher to get DAI into a useful, real world asset (like USD). I think DAI needs billions in circulating supply and a self-sustaining, circular economy before it can safely transition to a free floating currency.


I mean, AMPL is starting to be used by defi… would this really hurt our reputation that much?

Is there any scenario where the Target Price Cap wouldn’t be set to 1USD? This is not really a technical question because I would prefer it configurable, so I’m more so just asking from a governance and clarity standpoint.

My understanding for why there is a cap and not a floor, is that we would use the cap to return to 1DAI == 1USD and then move to a DSR from then onwards. So DAI would ideally only temporarily trade 1USD, limiting the damage to the social contract around 1DAI == 1USD

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@OliverNChalk The reason for having the Target Price Cap is exactly as you say: in the future it is very likely that we will have positive interest rates again, and then we will have the option of returning the Target Price to $1.00 by running a positive Target Rate for a while until $1.00 is reached, switching to DSR thereafter. Technically speaking, the cap allows us to target an exact number, since otherwise timing the rate change to fix the price at an exact level will be impossible.

It seems unlikely that we would want to return to a fixed price other than $1.00, which is also why there is no price floor in the suggested implementation.


Hi, it’s been awhile since anyone talked about this, and personally I am very excited about this MIP!
Is there a planned date for when this will get an onchain vote?

There is IMHO no point in even discussing a negative interest rate. You can’t cure a craze like DeFi with some “rational” tweeks to the stability fee. The two do not even remotely compare. You will just end up damaging Dai instead. With regards to the peg the Maker community will just have to onboard more collateral.


Honestly, a new liquidation/auction system and lower CR/LR will solve a LOT of Maker’s current problems.


Negative interest rates are natural, you are advocating for the unnatural by artificially subsidizing DAI holders. I would like your thoughts on the damaging effects of negative interest rates, compared to DAI’s current inability to return to the peg.

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Going to revive this thread, since I was thinking about it earlier today.

If I understand this correctly, it’s important to realise that slowly reducing par has an influence on the market price of DAI (which is why we’d want to modify it.) But it doesn’t instantly change the market price. The only way this breaks the peg in practice is if we leave it turned on after DAI reaches $1. For most users of DAI, this should be positive, as it will help keep DAI at peg.

The only DAI users that wouldn’t want this are DAI holders that purchased DAI above peg, and that’s kind of the point, we want those holders to sell to push the market price down. Users of DAI aren’t harmed by this unless DAI falls under the peg, in which case we turn it off or reverse it.

In practice turning this on is exactly the same as minting unbacked DAI (except that system technically supports changing par, so it’s actually possible). DAI is no longer worth $1 of collateral at shutdown, but it is worth whatever the market will pay for it, which is still currently >$1.

The more I think about this, the more the meme of ‘this is suicide’ makes less sense to me. The only real downside to this is that it (hopefully temporarily) makes DAI not fully backed by collateral, and that this is potentially damaging from a PR perspective. In practice this only affects users in the event of global shutdown, in the meantime, DAI is worth whatever the market will pay for it.

I don’t think this is true. From a governance perspective, the aim is still to peg DAI to $1. If the market prices it below a dollar, we’d reverse course and push it back towards $1. This is no different from Tether. General opinion is that Tether is not fully backed, but it’s still widely used, and it trades for $1.

Regardless of whether we ever turn this on though, this MIP just gives us more options, it’s hard to see the downside to that.