MIP20: Target Price Adjustment Module (Vox)

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!”

Would you be making this argument if the demand was being met by ETH though? “Where should we stop?”. Im guessing not. My guess is we would grow the supply as much as we could without debate.

My impression is that there are those who think USDC should never become higher than X% of the ETH debt ceiling. Be it 20%, 30%, etc. Personally I held this view as well until recently. What I’ve come to realize is this is not a productive view point to have if you want to scale the system. The risk of custodial providers is something I’m fully on board with if the alternative is to break the core value proposition of the system.

So the debt ceiling shouldn’t have a limit if we want to grow to meet demand.

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I wrote this awhile ago when I was on the PSM train. See Here

It is not fair to make that argument for ETH because ETH is not centralized and able to be blacklisted due to regulatory pressure from the US Gov.

My issue more so is one of creating system balance. If there is excess demand for Dai over the supply we both agree supply needs to increase, we just differ in views on how that can be done in a practical, sustainable, and safe way.

I hear you. I personally fall on the side of not being too worried about this US Gov seizure scenario anytime soon. In any case, I think we would both agree a geographically and politically diverse set of real world assets would be better, but we just aren’t there yet.

This situation is definitely only going to get easier over time as more and more assets become available across the crypto-sphere.

Are you in support of lending the USDC out at least so that MakerDao can still earn interest over time with those funds rather than just the 1 time trade profit for the Dai? These USDC could sit in the system for 20 years and may never be unwound.

My understanding is that these pools will unwind themselves naturally as the supply once again overtakes the demand. So I think the one time fees are fine.

We are getting a bit off topic though.

(1) The purpose of negative tax rate is to make people abandon the use of DAI to achieve system balance, which will cause the DAI market to shrink.
(2) The implementation of PSM is to increase the supply of DAI and meet the needs of DAI (the purpose of printing unsupported DAI is the same as PSM) to achieve system balance, and the DAI market will continue to develop.
(3) There is no precedent for the implementation of negative tax rate in the cryptocurrency market, and the negative impact cannot be controlled.
(4) Printing a certain percentage of unsupported DAI, we can refer to USDT’s successful case in the cryptocurrency market, and we can control the risk.

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